MCD Stock Intrinsic Value

Good day, fellow investors. A lot of comments about McDonald's. When there are a lot of comments, that also means that the stock is down. The P/E ratio starts to get attractive, the dividend gets higher. Let's look into this. I discussed McDonald's already a few times, likely once per year. So, we have to see where we are now on the return side of things. And for that, the best way is to go to our intrinsic value calculation. For comparative reasons, McDonald's has been analyzed already. Here it is. I will add it here to the newer discussions when we have also the link for the video. So, you can follow also there, but let's go to McDonald's. I have used different dividend per share. Now, that dividend is 7.44. I have to adjust that. I have to adjust the years, their terminal value, where we are, where we are going. And now, if we look at McDonald's dividend stock, dividend payout ratio, 100%. If the dividend grows at 5%, if you take a 25 terminal multiple, which is a 4% dividend yield, the intrinsic value is below 200. If we are more exuberant, 5%, but we are happy with a two, or let's say 2.something percent dividend yield, then McDonald's is fairly valued. However, if I am more negative, if I say I want a 5% dividend yield, then the present value is far from the current stock price. This would be a value investing scenario. So, from that perspective, I could be even a little bit more aggressive, put 15 here, and then present value for a value investment there would be around 115, 16. So, at current levels, we are far from margins of safety, far from anything. The stock price was much higher at the beginning of the year, but keep in mind that at the beginning of the year everyone was expecting interest rates to go lower. And this is the key when it comes to McDonald's. Interest rates didn't go lower. 10-year Treasury is at 4.77. When you compare the 2% McDonald's yield, now McDonald's isn't attractive at the stock price of 300. They need a higher yield. Stock price needs to come down. This time, when interest rates were at 2%, then a 2% dividend yield from McDonald's was okay. Now, perhaps one needs 5% dividend yields from McDonald's. And that's also the reason why practically the stock hasn't done much over time. If we look a little bit at the business, yes, it is growing 5%. A little bit of buybacks. Earnings grow at 6% thanks to those buybacks. So, nothing stellar. Maybe they will find new ways, but it's unlikely they will grow more than single-digit numbers during the capital markets day. And you can see here, franchise is okay, but slow growth over time. Nothing spectacular. If we go to 2019, compare it to now, okay, a few percentage points growth, that is what McDonald's delivers. A little bit better on the earnings per share side because of the buybacks, then they slowed down, then now they're more focused on dividends. So, this is an interest rate play. Dividend yield is still relatively low. Of course, if interest rates go down, you make your 20-30% on top of the dividend. If interest rates stay, McDonald's will go lower even if the business is doing well. From that part of the valuation, we can add it to our quadrant just for fun a little bit. And then if the stock price goes lower because of the defensiveness, we can then bring it, depends on the stock price, more towards the buy quadrant. Peter Lynch in his book used to say, "Avoid these slow growers if they are not priced at extremely bargain prices." McDonald's is not priced at the bargain. McDonald's is expensive a void. Thanks for watching. Check what I do on my research platform and I'll see you in the next video.