McDonald's is the new 'Value Meal,' says trader Mike Khouw

McDonald's is revising its U.S. value strategy due to its slowest sales growth in over a year. The company is implementing a near-term plan with temporary menu items, national digital promotions, and personalized offers for loyalty members. While a return to the original "Dollar Menu" is unlikely due to inflation, McDonald's aims to restore the perception of good value. Consumer perception of McDonald's as a good value has declined from approximately 55% in 2020 to about 40% in 2024, according to a UBS study. In the second quarter, comparable sales rose only 0.8%, while spending by households earning under $40,000 declined 2.4%.

Despite customer value perception issues, McDonald's shares have shown stability, trading near $248.50, compared to roughly $242.50 five years ago. The company's underlying business has improved, with a reduced share count (down about 5.25%), projected 2026 revenue exceeding $28.2 billion (up from $23.2 billion in 2021), estimated net income rising to roughly $9.15 billion (from $7.5 billion), and free cash flow approaching $7.65 billion. This means each share represents a larger portion of the company's improved financial performance.

McDonald's is trading at approximately 19.2 times forward earnings, which is the cheapest forward multiple in the past ten years. The company benefits from scale, convenience, and its digital ecosystem, appealing to consumers who may be trading down from more expensive dining options. Trader Mike Khouw suggests a trade involving selling a three-month put option and buying a call spread, expressing a view that the stock may see some upside.