With Trump’s reciprocal tariffs roiling the markets, investors are looking to Happy Meals for a smile.
On Thursday, shares of McDonald’s (MCD), Yum! Brands (YUM), and Restaurant Brands International (QSR) all popped while the wider market plunged. The Golden Arches is up 2%, while Yum (KFC, Pizza Hut, Taco Bell) and RBI (Burger King, Tim Hortons, Popeyes) are up 2% and 1.4%, respectively.
The S&P 500 (^GSPC) dropped nearly 5% amid the sell-off.
Fast food chains could benefit as investors try “to shield their portfolio from tariff risk and uncertainty,” BTIG analyst Peter Saleh told Yahoo Finance over the phone.
“Generally, the vast majority of the products are sourced domestically,” Saleh said, with a modest amount of items like produce, beef, and wheat imported from Canada and Mexico.
As of April 5, all imports will face a baseline tariff of 10%. On April 9, about 60 countries will get a higher rate. China is facing a 34% reciprocal tariff on top of the 20% tariff already in place, making it a total of 54%.
But for Canada and Mexico, goods compliant with the US-Canada-Mexico agreement (USMCA) are exempt from duties, while noncompliant goods are charged 25%. Roughly 80% of key food categories imported from those two countries are USMCA compliant, per TD Cowen’s Andrew Charles, who called the exemption a win for the food industry.
The fast food giants also have the benefit of the franchise model, in contrast to many fast-casual restaurants like Chipotle (CMG), Cava (CAVA), Sweetgreen (SG), and Shake Shack (SHAK). Shares of those four sank 4%, 7%, 13%, and 12%, respectively.
“If everybody’s sales are going to be hurt, the earnings are going to be hurt less for the franchise business models,” Saleh noted.
Bernstein analyst Danilo Gargiulo and Saleh both have Neutral ratings on McDonald’s and Yum! Brands, despite perception the chains could be more resilient when consumers tighten their belts.
“You’re not getting a lot of earnings growth out of McDonald’s, and you’re paying 25 times earnings growth that … does not seem like a good value proposition,” Saleh said.
The companies’ efforts to compete on value, with Taco Bell increasing its value mix from 13% to 18% and McDonald’s bringing its value mix to more than one-third, could hit its profits.
“[One-third] is too much, in my opinion … they need to bring it down to more reasonable levels and start promoting more full-price items,” Saleh added.
Phil Kafarakis, CEO of the Food Away From Home Association (IFMA), told Yahoo Finance that throwing these tariffs “on top of everything” will likely cause “another round of reviews on pricing.”
