McDonald's Q4 Comps Accelerate, But Subsidy Cliff Threatens Durability

What happened

McDonald's reported strong Q4 2025 earnings with global comparable sales accelerating to 5.7% and U.S. comps at 6.8%, driven by aggressive marketing and value promotions like Extra Value Meals (EVMs). However, the DeepValue master report reveals that corporate funding for these EVMs is set to end after Q1 2026, making recent performance partially subsidized and raising questions about sustainability. Critically, filings show U.S. comp growth has been primarily check-driven, with guest counts remaining weak, undermining the narrative of a traffic-led recovery and highlighting reliance on pricing rather than volume. Despite margins holding near 45-46%, the valuation at 27.4x P/E reflects optimistic growth assumptions, with limited upside unless McDonald's becomes a defensive capital magnet in a risk-off market. The upcoming Q2 2026 will be the first clean read of franchisee-funded value, posing a significant test for the company's earnings durability and investor thesis.

Implication

The strong Q4 comps, while positive, are tempered by the impending end of corporate EVM support, which could expose underlying traffic weaknesses if franchisees reduce discount depth. Without continued subsidies, franchisee economics may strain, leading to potential margin compression and traffic declines that challenge the crowded 'trade-down winner' narrative. At current elevated valuations, there is limited margin of safety, increasing downside risk if post-subsidy data disappoints and reinforcing the need for entry points near $300 for better risk-adjusted returns. Monitoring guest count trends and franchisee alignment in Q2 2026 is essential, as any failure to sustain positive traffic could trigger a reevaluation of the stock's premium pricing. Overall, patience is warranted to avoid buying into a potentially overhyped story before the durability test is passed.

Thesis delta

The Q4 earnings confirm the near-term effectiveness of McDonald's marketing and value strategies, but do not alter the core thesis from the DeepValue report that the key risk is the end of corporate EVM support in Q1 2026. Investors should still wait for Q2 2026 results to assess whether franchisee-funded value can sustain traffic growth without compromising margins, as the thesis remains focused on this upcoming test rather than the recent headline numbers.