FA Alpha Daily

Medications can change eating habits

A new health trend could spell trouble for McDonald’s. A recent survey shows that a growing number of Americans are using GLP-1 drugs, which are designed to curb appetite. To stay competitive, McDonald’s may need to adapt by offering healthier options. In today’s FA Alpha Daily, we explore how this dietary shift could affect McDonald’s profitability moving forward.

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A recent survey found that one in eight U.S. adults (12%) admits to using glucagon-like peptide-1 (GLP-1) drugs.

GLP-1 drugs, which include popular medications like Ozempic and Wegovy, are prescribed to treat diabetes and help with weight loss.

The survey, conducted by the Kaiser Family Foundation (KFF), suggests public awareness and adoption of GLP-1 drugs has notably increased in recent years.

Survey shows that while about 6% of adults have admitted they are currently under GLP-1s, the percentage of those who have ever taken these drugs rises to 43% among adults who have been diagnosed with diabetes.

GLP-1 drugs work by mimicking the effects of a naturally occurring hormone called glucagon-like peptide-1, which is released after eating and signals feelings of fullness.

Specifically, these drugs slow the movement of food from the stomach into the small intestine, making people feel full faster and for longer durations so that they end up eating less.

This appetite-reducing and calorie-cutting effect is revolutionary for human physiology and will likely impact many businesses in the food industry over the long run.

By decreasing overall food consumption, wider adoption of GLP-1 drugs may gradually erode sales at restaurants, packaged food companies, and supermarkets.

One major company that could be significantly affected is McDonald’s (MCD).

As the largest fast food chain in the world with over 41,000 locations globally, McDonald’s business model relies on frequent customer visits and impulse purchases.

McDonald’s has traditionally attracted a broad customer base, from young families to older individuals, by offering affordable and convenient meal options. 

However, if GLP-1 drug usage reduces overall calorie intake and eating out, McDonald’s may lose a substantial portion of its customers.

Specifically, regular McDonald’s customers seeking to lose weight or better manage diabetes through GLP-1 medications may find themselves visiting locations less often as the drugs decrease appetite.

Fewer visits could translate to significantly reduced sales and profits for McDonald’s over the long run.

McDonald’s will need to closely monitor evolving prescription trends and modify its marketing accordingly.

Strategies like emphasizing healthy menu items featuring calorie or carb counts could help retain some customers using GLP-1 therapies. However, the full impact on sales and foot traffic remains unclear as the adoption of these drugs increases globally.

Additionally, our EEA shows that the stock is not cheap with 28x P/E and 4.9x P/B, and McDonald’s is priced to have increasing ROA going forward.

When considering an investment in McDonald’s, investors should be aware of this potential long-term headwind.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

Today’s highlight, McDonald’s (MCD) is one of the top stock picks from FA Alpha 50 this month. To see more stock picks like this, become an FA Alpha and get access to FA Alpha 50.

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