McDonald's (MCD)

Total return at 5 years: 12.0%/year = 8.8% appreciation + 3.2% dividend. The target price ($359) is ex-dividend; the $44 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $361 · Multiples $327) exceeds the market price ($236).

Today — fairly valued: at $236 trades ~27.9% below its value discounted to today (~$327); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($359) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$208.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($236) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-3.4%/year) than we project (6.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$7.4 bn of owner earnings in year 5 (vs ~$11.8 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on Utilidad (P/E). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Rolling grid: year-0 is the actual TTM (revenue US$27.70bn as of Jun-2026, XBRL). The guidance the company published with Q2'26 confirms the path and does not move it: full-year operating margin "between 40% and slightly under 50%" against the actual 46.2% TTM, capex of US$3.7 to US$3.9bn against the US$3.7-4.1bn the model projects, a tax rate of 21% to 23% against the model's 21.9%, and ~2,100 net openings in 2026. So only the year-0 level is re-anchored — revenue moves +0.9% — and the growth rates stay intact. McDonald's is a restaurant franchise of royalties + real estate (~95% franchised): rent ($10.4bn, 63% of franchise revenue) exceeds royalties ($6.0bn) — McDonald's owns 56% of the land and 80% of the buildings and collects rent like an annuity, largely independent of franchisee profitability (Ray Kroc's "real estate business" model). It is valued on P/E over earnings (~US$12.42 per share in the TTM): equity is negative (an artifact of decades of buybacks, treasury shares of $79.7bn), so P/book value does not apply — P/E is used instead. Equity-level (cajaStart 0/debt 0): earnings are levered → P/E hands over equity directly; net debt of ~US$39.4bn (intentional, funds the buyback) lives in the DCF and in health. Full returner: on free cash flow of US$7.76bn in the TTM it returns dividends (~US$5.1bn) plus buybacks (US$2.33bn), essentially all of it → retention near zero, no cash accumulation. Dividend King (50 consecutive years). Operating margin 46% (the royalty/rent model). Earnings compound ~7%/year (comps ~3% + unit growth ~2.5% toward 50,000 restaurants by 2028, the company's stated target + buybacks). Exit multiple 20.5x = midpoint of the restaurant-franchise band [18,24], at the midpoint on headwinds from the lower-income consumer + the GLP-1 noise.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $359 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $236, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $359 in 5 years plus $44 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $327. Against the current market price ($236), the margin of safety is 27.9% (trades below the maximum → there is margin) and the total return at that price would be 12.0% annually.

• Multiple vs the band. P/E ~19× — the midpoint of the restaurant franchise band (18-24×), below growth-oriented company-operated peers. Reasonable, at a discount to its norm.
• The 2026 decline. The stock fell on consumer weakness and fear over GLP-1s. Generated a genuine discount to its norm for a quality defensive.
• Margin of safety. Base case 5y ~$359 vs price ~$236 → total return +12%/year (the 2.8% dividend is a part). Modest discount to its norm; the asymmetry is favorable (the real estate annuity provides a floor).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (86%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC vs the 10% bar. ROIC ~20.3% — exceptional (well above the bar), though down from ~25% over three years. The very high-margin rent-and-royalty model (46.1% operating) generates quality returns.
• Quality of cash. Cash conversion (FCF/net income) is ~84%; SBC is small (2.3% of FCF). Earnings are high quality, backed by the recurring real estate annuity.
• Leveraged balance sheet. Debt of US$40.0bn (gross) deliberate to fund buybacks; negative equity (an artifact, not financial distress). Investment grade (BBB+/Baa1), laddered maturity schedule. Valued on P/E.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

McDonald's engine is systemwide sales (US$139.4bn, +7%) — the base on which it collects rent (US$10.4bn) plus royalties (US$6.0bn). They grow via comparable sales (~3%: value, digital/loyalty, and the core menu) plus unit growth (toward 50,000 restaurants by 2027, capital-light, funded by franchisees). The loyalty program (250 million target users by 2027) plus delivery (~41,000 restaurants) plus drive-thru (~29,000) are the digital and convenience drivers. The dividend (a 50-year king) plus buybacks return practically all free cash flow; capex (~US$3.4bn) is modest for the scale (the franchise model).

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Growth in systemwide sales (+7%) plus comparable sales (+3.1% consolidated in FY2025) plus units (+2.5%) is real. Rent and royalties grow with the system.
• Growth engine. Comparable sales (value, digital/loyalty, and the core menu) plus capital-light unit growth (toward 50,000 by 2027). The loyalty program (250M target) plus delivery are digital drivers.
• Headwinds. The low-income consumer (cyclical) plus GLP-1s (structural) are the risks to growth; comparable sales already recovered on an annual basis, but they remain the metric to watch closely.

• Relevant in 10 years (recurrence). Fast-food convenience plus real estate are recurring and defensive. The brand and locations are durable. The long-term unknown is GLP-1s, which the 10-K itself mentions without yet quantifying.
• Pricing power. Strong (brand plus scale), but moderated by the need to strengthen the value offer against the low-income consumer. Operating margin (46.1%) stays high.
• Moat and its direction. A wide, threefold moat (brand, scale, and real estate); direction stable, widening with capital-light unit growth. The rent and royalty annuity is the least obvious moat.
• Consumer and GLP-1 headwinds. The low-income consumer (cyclical) plus GLP-1s (structural, not quantified in the filing) are the risks that sank the stock; the real estate annuity provides resilience, but comparable sales still need close watching.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• !Interest coverage (EBIT / interest)7.9x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 86% of ROIC
• ✓Value creation (ROIC − 10% bar)+10pp
• ✓Malinvestment test (capex vs incremental ROIC)Productive investment (1.6x)
• !Float / working capitalConsumes cash $1.2 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.6% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Debt of US$40.0bn (gross; net of cash ~US$39.2bn) deliberate to fund buybacks; negative equity (an artifact, not financial distress). Investment grade (BBB+/Baa1). Manageable with predictable cash flows.
• Cash generation. FCF ~US$7.2bn, conversion ~84%. Covers the dividend plus buybacks. Capex (~US$3.4bn) is modest for the scale (the franchise model).
• Dividend sustainability. Dividend king (50 years); FCF covers the dividend with buybacks on top. Solid — the priority after modest reinvestment in the business.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Kempczinski meets the 6× salary holding requirement; ownership is dispersed (no founder control). Compensation is largely performance-based. Reasonable alignment.
• Capital allocation. Returns practically all free cash flow in a disciplined way (dividend, a 50-year king, plus buybacks); capital-light unit growth is funded by franchisees. No risky M&A. Exemplary.
• Execution / integrity. Executed the comparable-sales recovery (from −0.1% to +3.1% consolidated) plus the push toward 50,000 units. Handling the value offer and the GLP-1 unknown are the live, ongoing tests.

• The stock fell on low-income consumer weakness in the U.S. — a cyclical drag that took U.S. comparable sales to +0.2% in FY2024, with the Company strengthening its value offer to sustain traffic.
• Fear over the effect of GLP-1 (weight-loss) drugs on fast-food demand, explicitly mentioned in the 10-K as a risk factor with an impact not yet quantified, added a structural long-term fear weighing on the multiple.
• The result: it trades at ~19× earnings, at the midpoint of the restaurant franchise band for a very-high-quality business (Dividend King, ROIC 20%, the real-estate annuity).

McDonald's has a genuine source of discount: motivated selling from cyclical fear (the low-income consumer) plus structural fear (GLP-1s) punished the stock, which trades at ~19× earnings. The perception-reality gap: the market discounts that consumer weakness and GLP-1s damage the franchise, but the rent and royalty annuity (largely independent of franchisee profitability) provides a resilience backstop a pure restaurant operator doesn't have, and comparable sales already show recovery on an annual basis (from −0.1% to +3.1% consolidated). It isn't a deep bargain (the discount to the norm is modest), but it is a quality defensive at a below-average price, with the option that the headwinds prove cyclical.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +5%/year (+29% total): the margin of safety protects the downside. The bull (+17%/year, +120% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Low-income consumer. The short-term disconfirmer: pressured by costs and a tighter budget; the Company strengthens its value offer to defend traffic. U.S. comparable sales are the metric to watch.
• GLP-1. The long-term structural risk: the 10-K mentions the use of weight-loss drugs as a factor that could alter consumer behavior, without yet quantifying its impact on fast-food demand.
• Inflation and franchisees. Beef and labor inflation, only partially hedged, plus franchisee financial health (on which revenue depends) are operating risks; a recession pressures them.
• Full multiple and leverage. With debt of US$40.0bn and a multiple below its norm but still demanding, a stumble in comparable sales or margin hits hard, though the discount to the norm provides some backstop.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 20% above the 10% bar, but the margin is limited (+28%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a PEG of 3.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 8% (EBIT/EV) + ROIC 20% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -3% vs our 6%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +2%/yr, bull-scenario ceiling +14%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, cost advantage, switching costs, efficient scale → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -3%, within what we project (6%) — the story squares with the numbers.