Our Calculation Of Intrinsic Value: McDonald’s Corporation (MCD)

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Each week, we run a DCF (Discounted Cash Flow) model on a company from our watchlist.

This week’s pick: McDonald’s Corporation (MCD).

Profile

McDonald’s is the world’s largest fast-food chain, operating and franchising restaurants across more than 100 countries.

The company primarily follows a franchise model, generating revenue from rent, royalties, and fees rather than direct restaurant operations.

McDonald’s business model is driven by:

Global same-store sales growth
Expansion of franchised locations
Menu innovation and pricing power

McDonald’s competitive advantages include:

An iconic global brand with unmatched scale
A highly profitable franchise model with stable cash flows
Prime real estate ownership and control
Strong pricing power and resilience across economic cycles

McDonald’s continues to benefit from defensive characteristics, steady demand, and global expansion, particularly in emerging markets.

DCF Analysis

Inputs:

Discount Rate: 8%
Terminal Growth Rate: 3%
WACC: 8%

Forecasted Free Cash Flows (in billions USD)

2025: $7.6 → PV: $7.1
2026: $8.1 → PV: $7.0
2027: $8.6 → PV: $6.8
2028: $9.1 → PV: $6.6
2029: $9.7 → PV: $6.6

Total Present Value of FCFs = ~$34.1B

Terminal Value Calculation

Using perpetuity growth model with 2029 FCF = $9.7B:

TV = (9.7 × 1.03) ÷ (0.08 − 0.03)
TV ≈ $199.8B

Present Value of Terminal Value ≈ $136.0B

Enterprise Value

Enterprise Value = $34.1B + $136.0B = $170.1B

Net Debt

Cash & Equivalents: ~$1.1B
Total Debt: ~$51.9B

Net Debt ≈ $37.3B

Equity Value & Per-Share Value

Equity Value = $170.1B − $37.3B = $132.8B
Shares Outstanding: ~0.72B

Intrinsic Value per Share ≈ $180–190

Conclusion

DCF Value: ~$185
Current Price: ~$310
Margin of Safety: ~–40%

McDonald’s remains a high-quality, defensive business with predictable cash flows, strong brand power, and a highly efficient franchise model.

Growth is supported by pricing power, international expansion, and continued optimization of its asset-light structure.

However, at current levels, the stock appears significantly overvalued relative to its cash flow profile. Future returns are likely to be driven more by steady earnings growth and dividends rather than multiple expansion.