Wednesday, March 26, 2014

Should You Be Loving McDonald's Corporation?

Another year completed and another annual report to go through. Back in late January, McDonald's Corporation (MCD) announced 4Q 2013 and full year earnings so what better time than the present to input the new data and update my valuation analysis. McDonald's Corporation closed trading at $96.18 on Monday, March 24th giving a current yield of 3.37%.

DCF Valuation: 

Analysts followed by Yahoo! Finance expect McDonald's Corp. to grow earnings 7.78% per year over the next five years and I've assumed they can grow at 5.84% (75% of 7.78%) for the next 3 years and at 4.50% per year thereafter. Running these numbers through a three-stage DCF analysis with a 10% discount rate and summing over 30 years yields a fair value price of $106.50. This means the shares are trading at a 9.7% discount to the discounted cash flow analysis.

Click here to read the rest of the analysis.

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11 comments:

  1. Can you post the whole article on your site, too? I still don't want to sign up for yet another website just to read your article.

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    1. WE,

      Unfortunately no I can't. With articles I submit as premium articles, i.e. paid content, I can only post excerpts of them on my own blog.

      Thanks for stopping by!

      Delete
  2. Thanks for the analysis. It's been hanging around the mid 90s for lately, I was hoping for it to dip a little more into the low 90s before possibly buying some shares.

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    1. Richie,

      It's been a fairly blah stock as far as capital appreciation for the last year but that's great for those in the accumulation stage. Blah price means more shares with each dollar of capital. Low $90's is a pretty good entry price for MCD.

      Thanks for stopping by!

      Delete
  3. Thanks for analysis JC. I last added McDonalds on the sell off a few months ago. It has been one of the great dividend growth companies over the last few decades.
    -Bryan

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    1. Bryan,

      No problem and I'm glad to get an updated valuation on the company. Next up is YUM and then I think I might move through some of the consumer staples companies. I'd love to see it dip back down below $90, that's where I'd be interested in adding. It makes up a bit too large of a position in my portfolio currently so I'd need a pretty compelling price to add shares. Although if I didn't own any I wouldn't feel bad about starting a position around current prices.

      Thanks for stopping by!

      Delete
  4. McDonald's Corporation is a giant company, and every investor just put the money there based on their own expectation and assumption.

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  5. I really like Mcdonalds, I think they may face some headwinds in the future with inflation but if the stock sees a slump as a result I will use it as a buying opportunity.

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    1. Marvin,

      Between inflation and health consciousness taking form MCD could face some headwinds. Personally I don't expect the health aspect to be of much concern for a while because Americans are typically slow to change and love convenience. I'd maybe add to my position somewhere around $87 but that's just because it makes up a good chunk of my portfolio already so I'd need a really compelling price.

      Thanks for stopping by!

      Delete