McDonald's Struggles with Value Message Amid Lagging Sales Growth

McDonald's reported US same-store sales growth of just 0.8% in its second quarter, lagging behind rival Burger King which posted an 8.5% increase. The company attributed the shortfall to its own execution and replaced its US chief, Joe Erlinger, in a move it called a 'planned transition'. CEO Chris Kempczinski acknowledged that lower-income diners had been pulling back for a couple of years, prompting the relaunch of Extra Value Meals and a new under-$3 menu.

The company's franchise model delivers steady cash flow, but its structure can slow system-wide changes. McDonald's owns the buildings of roughly 80% of its restaurants and the land under about 56%, providing a stable rent stream that has funded 49 consecutive years of dividend increases. However, this same model can limit the company's ability to quickly respond to changing consumer preferences.

The stock trades near two-year lows at around 20.5 times forward earnings, pricing in modest earnings growth from here. While McDonald's is not one of The Motley Fool's top 10 stocks for investors to buy now, the company's rent stream and dividend yield may make it an attractive opportunity for patient investors.