Warren Buffett Once Called Selling McDonald’s ‘a Very Big Mistake.’ The Stock Just Hit a 4-Year Low.
In a 2017 HBO documentary, Warren Buffett explained that he let the market decide his McDonald’s (MCD) breakfast. When stocks were up, he’d order the $3.17 bacon, egg, and cheese biscuit. When they were down, he’d go for something cheaper. Going by McDonald’s own stock, he’d be picking the cheaper option right now. The shares are currently about 30% below the record high they hit in March, and they’re now trading near their lowest level since October 2022. They fell about 5% on September 23 alone, after the company’s first investor day in nearly three years.
Investors were looking for a positive sign from a stock that has been falling for most of the year. Instead, things got worse. The event showed how costly the turnaround will be. McDonald’s plans to spend about $8.5 billion supporting franchisees through 2036 through rent relief and help with restaurant upgrades. About $5 billion of that comes by 2030. The company also confirmed its goal of reaching 50,000 restaurants has slipped a year to 2028, citing cautious consumers and higher building costs. Management does expect operating margin to climb from 46.1% last year to the low-to-mid 50% range by 2030. But the market focused more on the costs.
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Buffett’s connection to McDonald’s goes beyond breakfast, though. Berkshire Hathaway owned a McDonald’s stake worth about $1.4 billion at the end of 1996. Less than two years later, Buffett sold it. In his 1998 shareholder letter, he admitted that selling McDonald’s was “a very big mistake.”
That lesson feels relevant again, though the picture today is more complicated. McDonald’s just raised its dividend for the 50th straight year, earning it a place among the Dividend Kings. The yield now sits near 3%. But the investor day made it clear the recovery will take time and money. For long-term investors, the stock is worth keeping on the radar, even if the turnaround still needs to prove itself.
About McDonald’s Stock
McDonald’s is the world’s largest fast-food chain, serving customers in more than 100 countries. Nearly all of its restaurants are run by independent franchisees, which is why its new plan puts so much money into supporting them. Founded in 1955, the company is headquartered in Chicago, Illinois, and is led by Chairman and CEO Chris Kempczinski.
McDonald’s stock has had a rough 2026 so far, sliding 22%, well behind the S&P 500’s ($SPX) 12% gain during the same period. As I mentioned earlier, the stock reached its all-time high in March and now sits near its lowest point in years. The costly turnaround plans and weak traffic have weighed on the stock heavily.
McDonald’s looks cheap on paper after the recent drop, but the discount has its reasons. The forward GAAP P/E of 19.56x sits about 23% below its five-year average of 25.37x. The forward Price-to-sales ratio of 6.28x trades at a similar discount. The EPS outlook explains part of that gap. Analysts expect growth of just 6% to 8% a year through 2029. The balance sheet is one of the main concerns. McDonald’s holds just $822 million in cash against $54.60 billion in debt, leaving it with massive net debt. The $8.5 billion in franchisee support will add more pressure on top of that. The dividend offers some comfort, and the stock price is lower than it’s been in years. But investors will likely still need proof the turnaround is working before backing the stock again.
McDonald’s Targets More Stores and Higher Margins with NEXT
McDonald’s reported its second-quarter fiscal 2026 earnings on August 4. It reported revenue of $7.1 billion, down 0.56%, versus the $7.14 billion forecast. Adjusted earnings per share came in at $3.38, beating the Wall Street consensus of $3.34. The company also reported a year-to-date adjusted operating margin of 46.9%, highlighting the strength of its business model even as traffic trends softened in some markets. The quarter was held back by weak US performance. Internationally, the picture was stronger. Comparable sales in McDonald’s international operated markets rose 1.5%, while international developmental licensed markets grew 1.9%.
Looking forward, the company expects to reach 50,000 restaurants globally in 2028. It is also on track to open about 2,600 gross restaurants by the end of this year. Moreover, the company expects the benefits of its new beverage platform to continue as it expands into more markets. CFO Ian Borden said the company currently estimates a tailwind of about $0.15 from the impact of foreign currency translation on full-year 2026 adjusted EPS.
What Do Analysts Expect for McDonald’s Stock?
After the company’s investor day, investors weren’t the only ones unhappy. On Sept. 24, following the costly spending plan and cautious outlook, many analyst firms reduced their price targets for McDonald’s. This included RBC Capital, BMO Capital, Evercore ISI, BTIG, and TD Cowen.
Based on the 36 Wall Street analysts covering the stock, McDonald’s holds a “Moderate Buy” rating. The stock has gradually fallen over the last few months. This is why, despite the recent price target reductions, the mean price target of $313.39 still indicates a 32% upside.
On the date of publication, Jabran Kundi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com