Ian Bezek
Investor/Writer, Latin American Equities, Former Analyst at Kerrisdale
McDonald's is a tired brand even in Latin America, where it is priced above local options like a luxury brand without the taste to back that up. McDonald's Latin America, Arcos Dorados, had another wasted year, trailing both the index and top competitor Alsea, the Domino's and Starbucks operator of the region, by 50%. Stop trying to make this one happen. x.com x.comÂ
Arcos Dorados is unlikely to benefit much, if at all, from McDonald's multi-billion-dollar spending plan to aid franchisees, because the plan is US-focused. Being a master franchisee like Arcos Dorados is a pretty raw deal. x.comÂ
McDonald's faces GLP-1 drugs, runaway inflation, shifting Gen Z preferences and terrible management execution, leaving it in its worst drawdown in 20 years outside of COVID. x.comÂ
McDonald's looks attractive in one of its largest drawdowns ever, with its highest dividend yield in 11 years and its lowest P/E in six years. It was appealing at $247 and is a stock to commit to at $239. x.com x.comÂ
McDonald's is likely to see its metrics hurt over the next year by the rising cost of supporting struggling franchisees. Its rent and royalties hide franchisee pain: US same-store sales rose about 35% while prices rose about 40%, so traffic is likely shrinking, and sales growth slowed to 0.8% in Q2. Per their association, 95% of owners said Q1 profit fell. With remodels costing $400K-$700K per restaurant, McDonald's agreed to take on $8.5B through 2036 in lower rent and capex support. x.comÂ
McDonald's has turned from a growth equity into a bond proxy, a vicious cycle as Treasury yields rise. Per @The_Prophet_, yields moving from about 4% toward 5%+ raise the discount rate on its slow-growing cash flows, give income investors a risk-free alternative, and pressure its capital-intensive franchise system. Investors forget McDonald's shares were unwanted in the mid-2010s. x.comÂ
McDonald's is basically a REIT, so dips like this are good buying opportunities for a long-term portfolio. The stock is 24% below the all-time high it set just a few months ago and trades near a two-year low. x.comÂ
McDonald's shares keep falling because the consumer is not doing well, with disposable income at lows. The stock briefly dipped below $250 before rebounding to $251 and remains near multi-year lows. x.comÂ
McDonald's remains a little too rich at 20x earnings for mid-single-digit growth, even though it is one of the best businesses ever created and will probably be around in 100 years. That holds despite its second-worst drawdown in 20 years, down 23.6% from its highs, per Fiscal.ai. x.comÂ
Asset-light businesses that take a cut of every transaction have one of the most powerful business models, pairing low capex and high margins with steady cash flow from royalties and fees. That is the basis for a portfolio of McDonald's, Uber, Texas Pacific Land, Visa, Restaurant Brands International, Marriott, Franco-Nevada, CME Group and Arm, built to test whether such businesses can outperform the market. x.comÂ
McDonald's roughly $8.5 billion plan to help franchisees serve better food, improve service and simplify restaurants comes too late and will likely end the same way as Wendy's. Plunging real estate values add further pressure on McDonald's. x.com x.comÂ
