By Mackenzie Tatananni

McDonald's will lean into its competitive advantages in 2025, Citi Research says, upgrading the fast- food stock to Buy from Neutral.

Citi analysts Jon Tower and Karen Holthouse raised their price target for the stock to $334 from $311, projecting a recovery in margins and earnings before interest, taxes, depreciation, and amortization in 2025. Shares of McDonald's were down 0.8% on Friday.

"After a year of transitioning through consumer pushback to increased menu prices, we expect 2025 will be a year where scale advantages drive share gains across key markets," the analysts wrote.

Citi noted that the chain hadn't revamped its U.S. national value platform since January 2018, with the introduction of the Dollar 1, 2, 3 Value Menu.

The platform received mixed reviews, and its impact on comparable sales was difficult to determine amid a remodel cycle and the Covid-19 pandemic, the analysts wrote.

Between 2022 and 2024, price increases took a toll on consumer value perceptions for the brand and ultimately hurt traffic, with McDonald's posting its first quarter of declines in U.S. comparable-restaurant sales "since the heart of the COVID-19 pandemic," the analysts noted.

However, they argued, McDonald's solved the "fundamental challenge of national value," or increasingly divergent cost structures across the country, by allowing franchisees to use base item prices to manage profitability.

The analysts pointed to the $5 Meal Deal and Buy One, Add One for $1 promotion, which offers discounts for breakfast, lunch, and dinner.

"Importantly, there's franchisee buy-in as the menu provides for market-by-market flexibility around the starting price for the BOGO for $1 option," the analysts noted.

The restaurant chain unveiled its McValue menu on Tuesday, featuring various promotions including the $5 Meal Deal, which made its debut in June to explosive popularity and has since been extended through the summer.

"When it comes to value, we know there's no one-size-fits-all," McDonald's USA President Joe Erlinger said in a news release. The restaurant chain worked closely with franchisees to create a platform that lets "customers define value on their own terms," he said.

Citi placed McDonald's third on its Restaurant Rankings list. The bank argued that the release of the McValue menu and return of popular items like the Snack Wrap could boost comparable sales over the next 12 months.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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January 10, 2025 09:59 ET (14:59 GMT)

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