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McDonald’s (MCD) stock analysis

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McDonald’s (MCD) stock analysis

Overview

McDonald’s (MCD) was founded in 1940 and has grown quite a bit since that. Currently it’s the world’s largest hamburger fast food restaurant and second largest fast food restaurant right after Subway. It serves almost 70 million customers in more than 100 countries every day. MCD has the 6th most valuable brand in the world according to Forbes.

Distribution of revenue:

USA: 32 %

Europe: 39 %

APMEA (Asia Pacific/Middle East/Africa): 23 %

Others: 6 %

Financials

I’m using Compounded annual growth rate (CAGR), which describes the rate at which the number would have grown if it grew at a steady rate.

5 year CAGR of revenue: 4.32 %

5 year CAGR of EPS: 6.19 %

5 year CAGR of dividend: 8.76 %

Current payout ratio: 56 %

revenue

EPS

McDonald’s seems to be in good financial condition. Although dividend has grown faster than EPS in last 5 years, the payout ratio is still good at 56 %. What’s most important thing about their dividend is that they have raised it every year since 1976, which equals to 38 consecutive years! The revenue growth rate also seems very good considering that we are talking about the second largest fast food restaurant in the world.

MCD has a debt/equity ratio of 0.89, which is strong. If you take goodwill out of calculations, the debt/equity ratio is 1.09, which I find still very good.

Risks

McDonald’s operates in fast food industry, which makes it dependent on people’s consumption of fast food. People in developed countries are becoming more and more aware of the risks of fast food. However, I don’t really see this as a major threat. MCD can adjust its product portfolio if there really would happen a big decrease in the sales of their current products, which I see highly unlikely.

McDonald’s faces the same risks as all the global companies: currency risks, legislation, geographical disasters etc. However I think that the benefits and possibilities of such exposure are far greater than the risks.

Valuation

MCD currently trades at around $95.5. They pay $0.81 quarterly dividend, which results in annual yield of 3.39 %. I think this is quite an attractive yield for a company with such fast growth in the past and 38 years of raising dividend. The PE ratio is at 17.2, which is just a little over the 5-year average. I bought my shares at little below $100, so I definitely think MCD is currently attractively valued.

Full disclosure: Long MCD