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McDonald’s Stock: Great Value as Carl Icahn Takes Aim
Stock Analysis & Ideas

McDonald’s Stock: Great Value as Carl Icahn Takes Aim

McDonald’s (MCD) stock has been a choppy ride this year, with the stock attempting to recover from a brutal 18% decline.

Now down just shy of 12%, McDonald’s has been less damaged than the broader S&P 500 despite the recent barrage of negative headlines, ranging from pressure from billionaire activist investor Carl Icahn to McDonald’s exit from the Russian market.

With many investors fearful of a recession, McDonald’s stock stands out as a defensive way to steady a portfolio’s sails. Fast food tends to fare better when times get tough. With inflation and a weakening consumer, it’s McDonald’s that many will turn to over pricier options like dine-in restaurants or even cooking at home.

When inflation runs hot, and the economy begins to tip into a downturn, it’s natural for consumers to turn to firms that offer the most value. With such a strong loyalty program in place, it’s hard to obtain a better bang for your buck than at the local McDonald’s.

Though shares of MCD have been dragged considerably lower as a part of the broader market sell-off, I remain bullish on the golden arches, even as the firm takes a $1.2-1.4 billion write-off from the sale of its Russian operations while continuing to deal with demands from Carl Icahn.

Activist Investor Carl Icahn Applies the Pressure

Carl Icahn’s targeting of McDonald’s may be perplexing to some. Typically, activists pressure companies to make improvements to create value for long-term shareholders. With Icahn pushing McDonald’s to improve pig welfare by eliminating gestation crates, it seems like Icahn is just looking to do good by reducing the “unnecessary suffering” of pigs.

Undoubtedly, a move to create crate-free pork will take a sizeable investment from McDonald’s. However, over the long run, such a move could help the company improve its standing with customers, ultimately enhancing its ESG rating. These days, ESG ratings are of growing importance. Investors and customers care about the welfare of animals. Although an investment to improve pig welfare seems to lack a return, it’s likely to over the long haul in the form of intangible gains.

Icahn’s recent proxy battle with McDonald’s has shined a bright light on the treatment of pigs. Recently, the Humane Society joined Icahn to improve pig welfare, pushing the SEC to investigate the firm for its treatment of pigs. Undoubtedly, the big pig proxy may have caused some reputational harm to McDonald’s, given its resistance to give in to demands of Icahn and others who’ve joined him.

For now, McDonald’s seems to be getting its way in the proxy battle with Icahn. The company noted that Icahn’s proposals are “economically divorced from the potential impact.”

Though crate-free pork could be in the cards at some point in the future, it’s uncertain when Icahn will get his way, even as McDonald’s shareholders and other organizations join the cause. Even if Icahn doesn’t get his way with the pig proxy, don’t expect the investor to back away anytime soon. Icahn sees a lot of room where the iconic American fast-food firm can improve, most notably in the meatless meats category.

Icahn Wants McDonald’s to Expand Meatless Menu

In addition to eliminating pig gestation crates, Icahn wants McDonald’s to bolster its meatless menu. In a recent presentation, Icahn outlined several areas where McDonald’s can improve its ESG rating, including growth targets for the alternative meat category.

Undoubtedly, many fast-food chains have embraced alternative meat options with open arms. McDonald’s may be a tad slow to the race, but it can still make up for lost time. By spending more effort on alternative protein options, McDonald’s can improve its ESG rating and sales.

If McDonald’s won’t give into Icahn’s demands for pigs, more emphasis on alternative meat options seems like a great middle ground.

The Beyond Meat (BYND) McPlant burger has been met with mixed success. Recently, McDonald’s denied its intention to keep the menu item permanently. The news sent shares of Beyond Meat nosediving.

Undoubtedly, there’s a haze of uncertainty regarding McDonald’s faux meat plans. Icahn and many other investors would like to see the firm put more effort into catering to vegetarians. Undoubtedly, if the company can get meatless meats right, there could be a lot of gains to be captured.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, MCD stock comes in as a Strong Buy. Out of 28 analyst ratings, there are 22 Buy recommendations, and six Hold recommendations.

The average McDonald’s price target is $281.07, implying an upside of 14.95%. Analyst price targets range from a low of $245.00 per share to a high of $314.00 per share.

The Bottom Line

McDonald’s and Icahn are likely to continue their back and forth. Thus far, McDonald’s has been quite resistant to the activists’ requests. In due time, though, Icahn could influence enough shareholders to vote for change. Icahn’s proposals make a lot of sense and could help take the company to the next level.

There’s considerable upside if McDonald’s can beef up (pardon the pun) in the meatless meats category—an area where McDonald’s has come up short versus various competitors.

Whether McDonald’s meatless future lies with Beyond Meat or some other alternative protein firm, there’s definitely growth to be had by doubling down on efforts to beckon in vegetarians.

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