24/7 Wall St. Insights

• Analysts disagreed about how McDonald’s Corp. (NYSE: MCD) can recover the foot traffic it had before the pandemic.
• The fast-food chain operator has no easy answers to its revenue problem.
• Also: Dividend legends to hold forever.

Evercore ISI analyst David Palmer says McDonald’s Corp. (NYSE: MCD) is among his favorite stocks. Despite that, he thinks the fast-food chain may take 10 years to recover the foot traffic it had before the pandemic. In the meantime, McDonald’s will need higher prices to keep up its revenue per customer.

According to Yahoo, Palmer said, “McDonald’s traffic began falling in 2012 with the removal of the double cheeseburger from the Dollar Menu, with a 12% traffic decline until 2019 but [that was] more than offset by 22% check growth during that time.” So, between now and the start of the next decade, McDonald’s will need to raise its prices, as it has done for several years. That is confusing.

TD Cowen analyst Andrew Charles largely agrees, but his point of view is different. He told Yahoo, “We are big believers that everyday low priced beverages can be a key traffic driver as we saw the introduction of $1 any size beverages drive a rare year of traffic growth in 2017.”

In the case of both analysts, low prices bring in customers. Unfortunately, married with low menu prices, McDonald’s has a revenue problem.

The analysts’ advice may not work in the real world. Consumers still think the new $5 meals have not helped traffic, according to several sources. High prices kill foot traffic; lower priced menus may bring people back. Neither formula works financially. McDonald’s management has no easy answers.

This Fast-Food Chain Has the Absolute Lowest Customer Satisfaction Score

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