Opinions Stockchase Insights
McDonaldsMCDHOLDOct 11, 2023
Stockchase InsightsStock price when the opinion was issued
As of Jun 29, 2026. Market Open.
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Is near August 2024 lows. Is still operating very well, but inflation is eating into profits. Don't need to rush into this.
Kevin SimpsonThe headwinds are pretty severe, The consumer is strapped along with a K shaped economy where 80% are at the lower end and are struggling. They make up the bulk of McDonalds users. There is also a strong move towards better eating habits, health consciousness and weight loss medications.
Half its business is NA, half international. Not a huge amount of growth, perhaps 5-6%. EPS growth of 7-8%. Opens a few new stores a year. More of a landlord, with over 90% franchised. Very high ROIC.
Only 20x PE today, down from historically high 20s. In his world, it's a staple not discretionary :) Yield is 2.65%.
Martin Cobb, ASIP
She owns MCD instead, because MCD owns the real estate of their branches, so they collect rent. Because they are global, MCD enjoys economies of scale. It's defensive.
Christine PooleWas downgraded last Friday and today over fears they won't meet expectations this quarter, including disappointment over MCD's new chicken strips dish, that it won't turn things around. Rather, customer prefer heavily breaded chicken and the find these strips ugly. However, history says it has never paid to downgrade MCD. It's the king, offering good value and is highly well-run. The CEO will figure it out.
MCD is a mature fast food franchisor that is now trading at 21.4x times' Forward P/E (historical averages in the last five years range from 21.2x to 25.2x). The balance sheet has net debt of $47B, and a net debt/EBITDA of 3.2x, which is quite leveraged, but given the predictability of the business, we think it is still okay. The company has generated healthy cash flow over the years, most of which has been used for dividend increases and share repurchases. Although long-term growth may be affected somewhat due to a healthier lifestyle, we think MCD could do well over the short term given the pricing power of the capital-light business model as a franchisor, which is valuable in an inflationary environment. We would nor really be concerned about the weight loss drugs. They could even have a net positive impact if consumers believe they are healthier overall and want to 'treat' themselves. Overall, we like MCD as a solid dividend grower name, and we are okay to add some here at the current valuation.
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