5
McDonald's Corporation (MCD)
- Equity
- US
- Consumer Cyclical
RISK
RETURN
Key risk factors
Negligible price volatility
Strong trading liquidity
Resilient to price shocks
Key return factors
Solid dividends
Strong margins and returns
Greatly overvalued vs peers
Company profileMcDonald's Corporation operates and franchises McDonald's restaurants in the United States and internationally. Its restaurants offer hamburgers and cheeseburgers, chicken sandwiches and nuggets, wraps, fries, salads, oatmeal, shakes, desserts, sundaes, soft serve cones, bakery items, soft drinks, coffee, and beverages and other beverages, as well as breakfast menu, including biscuit and bagel sandwiches, breakfast burritos, hotcakes, and other sandwiches. As of December 31, 2021, the company operated 40,031 restaurants. McDonald's Corporation was founded in 1940 and is headquartered in Chicago, Illinois.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
22.30
21.90
PEG
4.10
-
P/B
-39.70
48.90
P/S
7.40
7.20
P/FCF
26.70
26.90
EV/EBITDA
19.00
20.90
Considering past and projected metrics, the stock is distinctly 'expensive' compared to its peers. Specifically, the stock is fairly valued on P/E, overvalued on EV/EBITDA, and overpriced on P/FCF.
Performance: Mixed
The stock has been falling steadily in the past six months, losing 5% in total. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 6ppts over six months and grown 4ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.
Analyst view: Somewhat favourable
The average target price is 331 and suggests 25% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 357.0. This translates into 34% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 285.0. This suggests 7% upside potential. Even the most pessimistic analyst believes there will be stock growth.
Profitability: Strong
RoE
McDonald's Corporation reported a return on equity (RoE) of -180.2% in the last 12 months, down from -116.5% in FY22. The market consensus projects an RoE of -419.2% in FY24, again behind its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 15.7% in the last 12 months, an increase from 11.9% in FY22. The market analysts predict that RoA will be 36.1% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) grew to 17.6%, above the peers. The consensus estimate for FY24 for RoCE is 57.8%, again ahead of the peers.
Net margin
EBITDA margin
Historically, MCD has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 33.4%, a growth from 26.6% in FY22. The company has reported very strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 49.5% in the last 12 months, up from 40.9% in FY22.
RoIC / WACC = 3.8(excellent value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 3.8 in the past several years. This ratio implies a excellent shareholder value creation. Growth: Average
Revenue
EBITDA
EPS
Free cash flow
MCD reported revenue of USD 25 765mn in the last 12 months, up 1% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 2% from FY23 to USD 11.83. Market expects EPS to reach USD 12.2 in FY24.Revenue growth has been constrained in the past several years (negative-to-neutral), while EBITDA growth has been steady. This all contributed to continued EPS growth (positive-to-neutral). The FCF trend is in line with EBITDA. We emphasize the highly volatile dynamics of FCF and EPS.
Dividends: Solid
Dividend paid
Dividend yield
The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been good and slightly above its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.
Default risk: Considerable
The risk of default is high. Among the negative credit factors, we point to slow historical revenue growth, negligible return on capital, excessive margin volatility, and an unfavourable capital structure. We note robust profitability, among the positive credit factors.
Volatility: Negligible
In normal market circumstances, MCD is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.
Stress-test: Resilient
In highly turbulent market conditions, MCD is not overly volatile. In other words, the stock will fall less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be low.
Selling difficulty: Very low
MCD boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.