McDonald's Corporation (MCD)

Discount cash flow analysis

Sell Overvalued by 46.3%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for McDonald's Corporation, based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2007 2008 2009 2010 2011 2012 2013 2014
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Price history

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $63.20 $62.11 $61.05
Terminal Growth% 0 $63.60 $62.50 $61.43
  +1% $64.01 $62.89 $61.81

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $119.00 (undervalued by 2.19%) - 12 months ago
  • tobyzero created a new valuation of $52.75 (overvalued by 16.04%) - over 7 years ago
  • GordonGekko created a new valuation of $52.14 (overvalued by 7.08%) - over 8 years ago
  • SethWellbourne created a new valuation of $40.08 (overvalued by 25.67%) - over 8 years ago
  • dweis created a new valuation of $54.88 (overvalued by 2.88%) - almost 9 years ago
  • TheCrunchBlog created a new valuation of $62.50 (undervalued by 4.57%) - 9 years ago
  • GordonGekko created a new valuation of $56.55 (overvalued by 13.89%) - 9 years ago
  • Sam created a new valuation of $51.32 (overvalued by 12.05%) - over 9 years ago

Comments

McDonalds - Reasonably priced but how much upside is there?

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/08/mcdonalds-reasonably-priced-but-how-much-upside-is-there/

We have assumed McDonalds revenues will grow to $25 billion in 2010 representing an annualised growth rate of 3.14% over the next three years. This growth will be driven by a combination of organic growth of existing stores and the ongoing opening of new stores.

EBITDA margins are projected to grow from 31.5% in 2008 to 33.5% in 2010 reflecting Mcdonalds’ strategy of focusing on franchised and affiliate stores. “Margins” derived from franchise operated stores for the first half of 2008 averaged 81.9% versus 17.1% for company operated stores. McDonalds re-franchised 300 stores in the first half of 2008 and plans re-franchise 1,000 to 1,500 by 2010.

We have assumed a constant capital expenditure of $2 billion per annum over the next three years consistent with McDonalds’ 2008 guidance. In 2008 this capital expenditure will be split 50/50 between the opening of 1,000 stores (net 600 stores) and reinvesting in existing stores.

A WACC (discount rate) of 8% has been used and terminal growth rate of 3% has been applied to McDonalds ongoing cash flows beyond 2010.

By TheCrunchBlog, about 9 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 139,318
Net Debt (Long-term borrowings less cash): 7,319
Equity Value: 67,750
Number of Shares Outstanding: 1,133,000,000
Calculated value per share: $62.50

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.