Money Tree Portfolio: Investing In McDonalds

By | June 26, 2013

For more information about the money tree portfolio, click here

Company Profile: McDonald’s Corporation operates restaurants in a franchise business where franchisees pay for ¬†the costs of the building and equipment while MCD owns the land/building or secures both through a lease. Revenues to the company come in the form os sales from company owned stores, rents, license fees, royalties, and other revenue streams from the franchisees. At the end of 2011, there were around 33,510 McDonald’s restaurants in 118 countries, with more than 27,000 operated by franchisees and 6,435 operated by MCD. McDonald’s has a mammoth 48.8% market share in the fast food restaurant industry with Burger Kind and Wendy’s as the next largest competitors. In the overall fast food segment, McDonald’s is still the single biggest player witha 19% market share by revenue followed by Subway with a 10% share. It’s international revenue has recently exceeded its domestic revenue which currently sits at 66%.

mcdonalds logo

 

Key Statistics:

Market Cap (intraday)5: 97.54B
Enterprise Value (Jun 25, 2013)3: 108.41B
Trailing P/E (ttm, intraday): 18.04
Forward P/E (fye Dec 31, 2014)1: 15.59
PEG Ratio (5 yr expected)1: 1.97
Price/Sales (ttm): 3.53
Price/Book (mrq): 6.4
Enterprise Value/Revenue (ttm)3: 3.92
Enterprise Value/EBITDA (ttm)6: 11.02

 

Why Should I Buy?

In 2003, after rapid growth mainly through adding more company-owned stores to boost revenues reduced both the quality of the food and profit margins, McDonald’s started a new strategy that focused on increasing same store sales by expanding menu options and increasing quality controls. In addition, a series of store renovations and expanding store hours also helped with MCD’s new strategy. The strategy has paid off with revenue growth at 40% and operating margin growth from the mid-20s to the mid-30s, with most of that increase coming in 2008-2010. This shows you how successful corporate management can really add value to a company and the stock price, which has payed shareholders handsomely during that period (with reduced share counts from 1.26 billion down to 1.00 billion through share buy-backs and a dividend increase of 24%), the share price is now eight times its low in 2003. Currently MCD is relatively stable despite hard economic times, afterall even people looking to save money still shop at McDonalds for it’s value menu. With further growth in international markets, and a constant inovation in food menu items (current trend is a health conscious diet), this stock has a good chance for a lot of upside. Consistently growing earnings, good management, and growing dividends also help MCD’s case of owning it in your portfolio.

 

 

 

Money Tree Portfolio Gained 9.4% in 4 months!
Money Tree Portfolio: Investing In Altria Group