MCD McDonald's
A wonderful toll-road franchise, still priced well above what slow, steady royalty growth can justify.
The story
McDonald's is a mature global franchisor and, in effect, a real estate landlord. Most of its revenue comes from rent and royalties, which earn 46% operating margins. Its moat is scale, brand, and prime real estate, and the business is late in its life cycle: low single-digit unit and price growth, financed by heavy debt and returned to shareholders through buybacks. The AI drive-thru (Archy) and the beverage push are incremental optimizations, not a new growth curve, and value-menu pressure on low-income consumers caps near-term pricing.
No facts changed materially, so all drivers are held. TTM revenue of $27.7B (about 3% growth) and a 46.2% margin fit the prior story: steady low-single-digit growth with a margin already at its franchise steady state. The 0.73 sales-to-capital reflects real-estate-heavy reinvestment, and the beta of 0.85 reflects defensive demand offset by about $39B of net debt. The roughly 8% price decline narrows the gap to value but does not close it.
Value drivers
| Revenue growth (Y1) | 3.5% |
| Terminal growth | 2.5% |
| Forecast horizon | 8y |
| Target operating margin | 46.0% |
| Years to target margin | 1 |
| Sales-to-capital | 0.73 |
| Beta | 0.85 |
| Failure probability | 0.4% |
| Cost of capital (WACC) | 8.5% |
| Terminal WACC | 9.0% |
Valuation bridge
| PV of explicit FCFF | 57.12B |
| PV of terminal value | 86.16B |
| Equity value | 103.66B |
| ÷ shares → per share | $146.49 |
News
neutral -0.10 · 8 articles
- Here's Why McDonald's (MCD) Fell More Than Broader Market
- McDonald's is spending $8.5 billion to put an AI called Archy in drive-thrus — even after its first attempt failed
- Can McDonald's Beverage Expansion Become Its Next Global Growth Wave?
- McDonald’s Reveals How AI Helps Set The Price Of Your Big Mac
- McDonald’s Deploys AI to Drive Dynamic Menu Pricing Across US Restaurants
- McDonald's AI ‘Pricing Engine’ Gauges What Customers Will Pay for a Big Mac: Report
- 2 of Wall Street’s Favorite Stocks for Long-Term Investors and 1 That Underwhelm
- McDonald’s (MCD) vs. Starbucks (SBUX): Which Is the Better Stock to Buy?
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 28.67B | 3.5% | 46.0% | 10.36B | 1.33B | 9.04B | 8.33B |
| 2 | 29.63B | 3.4% | 46.0% | 10.71B | 1.32B | 9.39B | 7.98B |
| 3 | 30.59B | 3.2% | 46.0% | 11.06B | 1.30B | 9.75B | 7.63B |
| 4 | 31.53B | 3.1% | 46.0% | 11.40B | 1.29B | 10.11B | 7.29B |
| 5 | 32.45B | 2.9% | 46.0% | 11.73B | 1.26B | 10.46B | 6.96B |
| 6 | 33.35B | 2.8% | 46.0% | 12.06B | 1.24B | 10.82B | 6.63B |
| 7 | 34.23B | 2.6% | 46.0% | 12.37B | 1.21B | 11.17B | 6.31B |
| 8 | 35.09B | 2.5% | 46.0% | 12.68B | 1.17B | 11.51B | 5.99B |
Key risks
- Traffic weakness among low-income consumers forces value discounting that squeezes franchisee economics and, later, royalty growth
- High leverage (about $55B debt) raises sensitivity to interest rates and refinancing costs
- The $8.5B AI and tech spend fails to earn its cost of capital, repeating the failed first drive-thru AI pilot
Catalysts
- Sustained comparable-sales recovery driven by the beverage rollout and value platforms
- Acceleration in international development-market unit growth