McDonald's: Will It Sink Or Swim?

McDonald’s Corporation MCD has been in deep water ever since it was uncovered almost a year ago that the company’s primary food supplier in China was selling expired meat to the restaurant chain. Ever since, it seems that McDonald’s has faced hurdle after hurdle all while management has tried to keep the company afloat. Additionally, McDonald’s stock has only increased a mere 4 percent in the eleven months since the scandal and the company’s U.S. same-store sales have dropped in the past six consecutive quarters.

As the public has grown a little more health conscious in recent years, McDonald’s has had trouble appealing to and gaining the trust of younger customers. Millennials have turned their attention to “healthy fast-food” establishment, Chipotle Mexican Grill, Inc. CMG, which adamantly displays transparent food sourcing thereby earning the trust of consumers in more than 1,600 locations.

McDonald’s came up with a few ideas to turn things around, including streamlining its menu so it is less overwhelming to customers and lowering the number of ingredients in its products to make them more appealing to the health conscious consumer.

However, these efforts were not enough to convince investors of a positive turnaround. Earlier this year, McDonald’s announced that former CEO Don Thompson would be stepping down from his position as he struggled to revive the company’s domestic sales. President of McDonald’s Europe, Steve Easterbrook, was chosen to take over as CEO of the company.

Two months into his new role as CEO, Easterbrook assured investors of his turnaround plan, focusing on “driving operational growth, returning excitement to our brand and unlocking financial value.” McDonald’s will operate under a new organizational structure following four market segments: the U.S, international lead markets, high-growth markets, and foundational markets.

Although this news gives investor a glimmer of hope, it has been over-shadowed by McDonald’s plans to close more restaurants in the U.S. than it opens this year. Back in April, McDonald’s wrote off $72 million in assets due to management’s decision to close about 220 under-performing restaurants in the U.S. and China, and an additional 130 underperforming restaurants in Japan. McDonald’s spokeswoman Becca Hary confirmed last week that the company will close more underperforming stores in the U.S this year than it opens, but failed to provide a specific figure.

On a lighter note for investors, McDonald’s has been notorious for raising its dividend every year since 1977 with a 19.5 percent growth rate over the past decade. However, due to the company’s recent sales struggles, McDonald’s dividend growth rate has dropped to 9 percent over the past three years.

Out of nine analysts polled by TipRanks, three are bullish on McDonald’s and six analysts are neutral. The 12-month average price target for McDonald’s is $102.25, marking a 5.5 percent potential upside from where the stock is currently trading. Overall, the all-analyst consensus for McDonald’s is Hold.