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As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, McDonald’s Corp ().
ProfileMcDonald’s is the largest restaurant owner-operator in the world, with 2023 system sales of $130 billion across nearly than 42,000 stores and 115 markets. McDonald’s pioneered the franchise model, building its footprint through partnerships with independent restaurant franchisees and master franchise partners around the globe. The firm earns roughly 60% of its revenue from franchise royalty fees and lease payments, with most of the remainder coming from company-operated stores across its three core segments: the United States, internationally operated markets, and international developmental/licensed markets.
Recent PerformanceOver the past twelve months the share price is down 9.68%.Source: Google FinanceInputs
Forecasted Free Cash Flows (FCFs)
Terminal ValueTerminal Value = FCF * (1 + g) / (r – g) = 181.76 billionPresent Value of Terminal ValuePV of Terminal Value = Terminal Value / (1 + WACC)^5 = 129.60 billionPresent Value of Free Cash FlowsPresent Value of FCFs = ∑ (FCF / (1 + r)^n) = 32.70 billionEnterprise ValueEnterprise Value = Present Value of FCFs + Present Value of Terminal Value = 162.30 billionNet DebtNet Debt = Total Debt – Total Cash = 48.51 billionEquity ValueEquity Value = Enterprise Value – Net Debt = 113.79 billionPer-Share DCF ValuePer-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $157.82
Conclusion
Based on the DCF valuation, the stock is overvalued. The DCF value of $157.82 share is lower than the current market price of $267.95. The Margin of Safety is -69.78%More By This Author:The One Stock That Superinvestors Are Dumping: Is It Time to Sell Comcast?Amazon.com Inc. DCF Valuation: Is The Stock Undervalued? Apple Inc. DCF Valuation: Is The Stock Undervalued?
