McDonald's International Resilience Supports Comps Amid Valuation and Leverage Concerns

What happened

A recent article highlights McDonald's resilient international markets, where disciplined value, local marketing, and scale efficiencies are bolstering comparable sales against global QSR pressures. This aligns with the DeepValue report's data showing comp re-acceleration in 2025, with Q3 global comps up 3.6% after a slight 0.1% decline in 2024. However, the report cautions that underlying traffic trends and margin stability remain under scrutiny, with risks from geopolitical events, regulatory scrutiny, and franchisee health. Critically, McDonald's stock trades at rich multiples—P/E ~25.8x and over 2x a conservative DCF estimate—while carrying high leverage (net debt/EBITDA ~3.65x) and negative equity. Thus, while operational improvements are evident, the investment thesis is clouded by valuation excesses and balance sheet vulnerabilities.

Implication

The resilience in international markets underscores McDonald's durable moat and ability to navigate pressures, but investors must recognize that comp improvements are priced in at current levels, with the stock trading at a premium. High leverage and negative equity amplify downside risk in economic downturns or if geopolitical or ESG incidents erode brand equity. Operational momentum, while encouraging, hinges on sustained traffic growth and margin defense, which face headwinds from labour inflation and competitive shifts. For existing holders, this supports a trim-or-hold approach rather than adding, as valuation lacks a margin of safety. New capital should await a material pullback or clearer signs of deleveraging and FCF acceleration to justify the rich multiples.

Thesis delta

The positive international performance confirms the comp re-acceleration trend noted in the DeepValue report, reinforcing the business's defensive qualities. However, this does not shift the core investment thesis, as valuation remains full and leverage high, sustaining the 'WAIT' recommendation for new capital absent a price correction or improved risk profile.