DCF Studio

    MCD · NYQ · Consumer Cyclical

    McDonald's Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 231.48

    Market price

    USD 248.24

    Implied upside

    -6.8%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 10.2% of revenue against depreciation of 8.0%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 231.48-6.8%
    Exit multiple
    USD 281.78+13.5%
    Market price
    USD 248.24

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn6bn12bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 28.2bnUSD 29.7bnUSD 31.2bnUSD 32.8bnUSD 34.4bn+5.1%
    EBITUSD 12.9bnUSD 13.5bnUSD 14.2bnUSD 14.9bnUSD 15.7bn+5.1%
    NOPATUSD 10.2bnUSD 10.7bnUSD 11.3bnUSD 11.8bnUSD 12.4bn+5.1%
    Add depreciation & amortisationUSD 2.3bnUSD 2.4bnUSD 2.5bnUSD 2.6bnUSD 2.8bn+5.1%
    Less capital expenditureUSD -2.9bnUSD -3.0bnUSD -3.2bnUSD -3.3bnUSD -3.5bn+5.1%
    Less increase in working capitalUSD -63.6mUSD -66.8mUSD -70.2mUSD -73.7mUSD -77.5m+5.1%
    Free cashflow to firmUSD 9.5bnUSD 10.0bnUSD 10.5bnUSD 11.1bnUSD 11.6bn+5.1%
    Discount factor0.96540.89970.83860.78150.7284-
    Present valueUSD 9.2bnUSD 9.0bnUSD 8.8bnUSD 8.6bnUSD 8.5bn-2.1%
    Present Value Of The ForecastUSD 44.2bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.607Reported 0.414, pulled toward 1.0 (Blume)
    Cost of equity8.34%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 175.7bn76.2% of capital
    Total debtUSD 54.8bn23.8% of capital, book value as a proxy
    Tax rate20.8%Effective, capped at statutory
    WACC7.30%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 231.48

    80% of EV

    Forecast FCFF, final year
    USD 11.6bn
    Capex at depreciation, working capital in reinvestment
    USD 12.4bn
    Less reinvestment at g/ROIC (9.3% of NOPAT)
    USD -1.2bn
    Capitalised
    USD 11.3bn
    ROIC (reported)
    27.0%
    Terminal value, undiscounted
    USD 241.2bn
    Terminal value, discounted
    USD 175.7bn
    Enterprise value
    USD 219.9bn
    Less net debt
    USD 54.0bn
    Equity value
    USD 165.8bn

    Exit at 15.7x EBITDA

    Value per shareUSD 281.78

    83% of EV

    Terminal value, undiscounted
    USD 290.7bn
    Terminal value, discounted
    USD 211.7bn
    Enterprise value
    USD 255.9bn
    Less net debt
    USD 54.0bn
    Equity value
    USD 201.9bn

    Spread between methods: 20%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.30%336.72383.51446.93537.85679.22
    6.30%251.32277.64310.84354.02412.56
    7.30%195.40211.76231.48255.73286.31
    8.30%155.95166.80179.49194.53212.66
    9.30%126.63134.18142.80152.76164.39

    Outlined: this model. Green text: above today's price of 248.24. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year5.1%6.3%+1.2pp
    EBIT margin45.6%48.1%+2.5pp
    Discount rate7.3%7.0%-0.3pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.