AGU Fundamental Research Investment Analysis, Agrium Inc.

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McDonald’s Corporation (MCD)

The Razor’s Edge

2-Year Price History

Recent Price
(4/22 4:00PM) -2.5%
$54.25
52-Week Price
$45.79 – $67.00
Market Capitalization
$60.4 Billion
Dividend Yield
3.70%
Most Recent Dividend
$1.63

About McDonald’s Corp.

McDonald’s Corporation is considered to operate in the Services sector. They specifically operate in the Restaurants business segment contained within the Leisure industry.

The Company franchises and operates McDonald’s restaurants in the food service industry.

Ockham’s Rating

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MCD Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company’s stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, MCD the high and low end of the Price to Sales per share ratios are 2.71x and 1.81x respectively.

Notice that MCD’s current Price to Sales per share ratio is 2.64x, which is high enough compared with historical norms of MCD to cause some concern. The current Price to Sales per share is near the upper end of the historical range. In our eyes, this is a negative factor because it is more likely that it will return to the normal range than continue rising outside of the range. At current sales per share levels, we would need to see a decline in the Price to Sales ratio of 16% merely to return MCD to its historical average.

MCD Cash Earnings

As the old saying goes, "Cash is King!" However, we prefer to capture a few other items within our analysis to identify "cash earnings". Nevertheless, an analysis of Cash Earnings is absolutely pivotal to assessing a company’s value, and currently MCD is below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for MCD to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 14.50 and a 9.59 low over the same period.

At its current price of $56.09, the Price to Cash Earnings ratio of 11.31 per share for MCD is relatively attractive. At current profitability levels, a drop in share price would only improve our future expectations. Again, Cash Earnings is an incredibly valuable metric, and management at MCD must continue on its generation to improve our overall outlook for the stock.

MCD Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company.

In MCD’s case, the estimated annual dividend is $2.00 resulting in a current dividend yield of 3.57%. Similar to our review of Sales and Cash Earnings per share, we evaluate dividend yields from MCD against the historic high and low levels over the past 10 years. The highest dividend yield from MCD over this period was 4.37% while the lowest dividend yield was 0.50% If you are looking for some “bang for your buck” then a dividend yield of 46.61% above the historical median should be enticing. MCD receives a positive boost in our view because as you know, equity at its core is simply a claim on future dividends.

Peer Comparison

:

McDonald’s Corp. Industry Grouping

(4/22/2009)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding MCD) 9.48 5.85 » 37.57 0.81 0.67 » 7.81 13.57% 23.85%
*10 year range does not include current year values
McDonald’s Corp. MCD $60.4 Billion $54.25 11.31 5.71 » 20.57 2.64 0.90 » 4.00 6.53% 20.80%
Carnival Corp. CCL $16.6 Billion $26.59 5.98 3.29 » 23.93 1.06 0.80 » 7.93 16.86% 12.38%
Yum! Brands, Inc. YUM $14.8 Billion $32.09 9.75 4.51 » 13.97 1.42 0.49 » 1.95 6.12% 45.43%
Starbucks Corp. SBUX $9.2 Billion $12.57 11.38 10.66 » 36.48 0.78 0.94 » 3.93 20.57% 21.54%
Marriott International, Inc. Shares- A MAR $6.9 Billion $19.59 12.47 7.52 » 26.87 0.51 0.32 » 1.55 7.40% 27.50%
Carnival PLC ADS CUK $5.6 Billion $26.44 7.82 3.27 » 86.59 0.28 0.80 » 23.71 16.88% 12.38%
>
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13 hours ago (04/22)
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3:39:26 PM MCD $54.63 McDonald’s Corp.
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12:03:09 PM MCD $56.00 McDonald’s Corp.
20 hours ago (04/22)
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11:03:05 AM MCD $56.10 McDonald’s Corp.
21 hours ago (04/22)
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10:08:03 AM MCD $56.34 McDonald’s Corp.
22 hours ago (04/22)
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9:53:12 AM MCD $55.75 McDonald’s Corp.
22 hours ago (04/22)
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9:42:28 AM MCD $55.61 McDonald’s Corp.
22 hours ago (04/22)
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23 hours ago (04/22)
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8:01:06 AM MCD $55.75 McDonald’s Corp.
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6:36:13 PM MCD $55.70 McDonald’s Corp.
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1 days ago (04/21)
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5:52:40 PM MCD $56.00 McDonald’s Corp.
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5:29:29 PM MCD $55.59 McDonald’s Corp.
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5:56:57 PM MCD $55.19 McDonald’s Corp.
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2 days ago (04/20)
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5:57:16 PM MCD $56.28 McDonald’s Corp.
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5 days ago (04/17)
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5:46:52 PM MCD $56.30 McDonald’s Corp.
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3:36:55 PM MCD $56.09 McDonald’s Corp.
5 days ago (04/17)
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11:08:09 AM MCD $55.52 McDonald’s Corp.
5 days ago (04/17)
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8:21:52 AM MCD $54.70 McDonald’s Corp.
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Key Fundamentals

MCD – McDonald’s Corporation Fundamentals
Price (4/22 4:00PM) $54.25
Volume (4/22 4:00PM) 12.7 Million
Last Close Price $55.63
10 Day Average Volume 8.7 Million
13 Week Price Range $50.44 – $59.77
52 Week Price Range $45.79 – $67.00
LTM Revenue $23.5 Billion
 
Shares Outstanding (12/2008) 1.1 Billion
Market Capitalization $60.4 Billion
Shares Held By Institutions 858.4 Million
Institutional Holders 1,521
% Shares Held By Institutions 77.10%
Earnings Per Share (EPS) $3.76
P/E Ratio 14.40
Book Value Per Share $12.02
 
Gross Margin 41.90%
Annual Dividend 2.00
Dividend Yield 3.70%
Beta 0.77
Fiscal Year Ends December