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McDonald ’ s Corp. (MCD) - NYSE

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McDonald ’ s Corp. (MCD) - NYSE. Patrick O ’ Donnell & Matthew Rasinski Thursday, April 11, 2013. Agenda. Introduction Company Overview Current Events Industry Overview Stock Performance Financial Analysis Valuation Recommendation. Introduction. - PowerPoint PPT Presentation
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  • McDonalds Corp. (MCD) - NYSEPatrick ODonnell & Matthew RasinskiThursday, April 11, 2013

  • AgendaIntroductionCompany OverviewCurrent EventsIndustry OverviewStock PerformanceFinancial AnalysisValuationRecommendation

  • IntroductionMcDonalds was founded in 1940 by Richard and Maurice McDonald in San Bernardino, CaliforniaIt is the largest chain of hamburger fast fast food restaurants, serving 68 million customers daily in 119 countriesRay Kroc purchased a franchise in 1955 and shorty after purchased the entire chain from the McDonald brothers Headquarters Oak Brook, Illinois, U.S.

  • Company OverviewMcDonalds operates over 34,000 restaurants worldwideEmploy over 1.7 million peopleNotable for their 25 year consecutive dividend increase to shareholders S&P 500 Dividend AristocratsMore recently spun-off Chipotle Mexican Grill, Donatos Pizza, and Boston Market among othersSector: Services, Industry: Restaurants

  • Global OperationsWikimedia Commons

  • Current EventsManagement has shifted gears by catering to young adults rather then the family friendly market segmentNo more play pens, baby seats, etc.Super Size Me Legislation restriction by Congress currently being debated pertaining to calorie intakeDrink size, burger, and fry reductions and reconfigurationsMcDonalds are recently combating this negative press by including a healthy optionFruit smoothies, yogurt, salad, whole vegetables and fruits

  • New York Ban on Super-Sized Drinkswashingtonexaminer.com

  • Declining Soft Drink SalesThe overall trend for soft drinks is steadily decliningThis is bad news for fast food restaurants considering drink sales are the most profitable segment on the menudividendbuddy.com

  • Labor StrikesNew York labor strikes on fast food chains are causing serious problemsHigh probability that minimum wages will rise in New York and across the nation CNN Money

  • Equity SnapshotStock Price: $101.42Beta: .345 Year PEG Ratio: 1.87TTM P/E: 17.58Forward P/E: 17.57Div. Yield: 3%

  • Industry OverviewMcDonalds is far larger company then all its competitors in terms of sales and market cap

  • McDonald's Market Share

  • Stock PerformanceMcDonalds performance from the purchase date of 2008 has a total yield of 96%, done handsomely as compared to its competitors

  • Porters 5 ForcesBargaining Power of Buyers: HighMany fast food chains to choose from both domestically and internationallyBargaining Power of Suppliers: LowLow quality food items are a commodityThreat of New Substitutes: ModerateAlternatives such as 1-minute meals, healthy living, are all driving forces that compete with the consumers walletCompetitive Rivalry: HighIndustry competes heavily with one another in terms of price and market share Threat of New Entrants: ModerateEmerging players may come from all walks of life, primary limiting factors are brick and mortar costs

  • How Does MCD Make Money?Company Operated Stores (40% total revenue)Franchise Revenue (60% total revenue)US (44% of total revenue)Europe (24% of total revenue)Asia/Pacific, Middle East, Africa (20% of total revenue)Other (12% of total revenue)

  • Is the Money Growing?US SalesGrowth 3.3%Customer Growth (1.9%)EuropeGrowth 2.4%Customer Growth (-.5%)APMEAGrowth 1.4%Customer Growth (2.2%)OtherGrowth 7.7%Customer Growth (3%)

  • How does McDonalds make money?Focus on balancing core menu classics with new products and promotional food events, such as Chicken McBites, Blueberry Banana Nut Oatmeal, and additional McCafe beverage offerings. New product introductions were among the largest drivers of revenue growth in 2010 and 2011 (Note: These items had significantly high profit margins)Target Customers: Medium Income Households (who spend roughly 40% of their food budget on dinning out) and 18 to 25 year olds (who spend nearly 46.4 of their food budget on dinning out)

  • The Good, The Bad, The QuestionableThe Good: APMEA geographic segment growth of 17.0% The Bad: Dollar Menu incentives are not bringing in the growth the in sales as the company had relied on in the past.The Questionable: Angus products are attempting to increase the quality of McDonalds products, however the lack of profit margin may cause the product to be abandon.

  • Financial ProjectionsSee Excel Model

    Concerns:

    Discount RateHigh ROEPrevious Valuation Errors

  • RCMPDecember 2008 Valuation: $49.63March 2009 Valuation: $63.27December 2009 Valuation: $66.87March 2010 Valuation: $77.95November 2010 Valuation: $77.55March 2011 Valuation: $73.83October 2011 Valuation: $93.05October 2012 Valuation: $95.81

  • Recommendation: SELLSell 200 Shares at MKT Price

    Stock maybe at peak price due to recent market exuberanceMcDonalds does not seem to fit with the general portfolio goals of RCMP (its difficult to discover value in a stock covered my many analysts)There is no shame in leaving the poker table on topOur Gain: $9,810 (Increase of 93.54%)

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