Stock Analysis on Net

McDonald’s Corp. (NYSE:MCD)

Dividend Discount Model (DDM) 

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

McDonald’s Corp., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 11.27%
0 DPS01 6.23
1 DPS1 6.23 = 6.23 × (1 + 0.00%) 5.60
2 DPS2 6.23 = 6.23 × (1 + 0.00%) 5.03
3 DPS3 6.23 = 6.23 × (1 + 0.00%) 4.52
4 DPS4 6.23 = 6.23 × (1 + 0.00%) 4.06
5 DPS5 6.23 = 6.23 × (1 + 0.00%) 3.65
5 Terminal value (TV5) 55.28 = 6.23 × (1 + 0.00%) ÷ (11.27%0.00%) 32.41
Intrinsic value of McDonald’s Corp. common stock (per share) $55.28
Current share price $296.10

Based on: 10-K (reporting date: 2023-12-31).

1 DPS0 = Sum of the last year dividends per share of McDonald’s Corp. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.55%
Expected rate of return on market portfolio2 E(RM) 13.83%
Systematic risk of McDonald’s Corp. common stock βMCD 0.72
 
Required rate of return on McDonald’s Corp. common stock3 rMCD 11.27%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rMCD = RF + βMCD [E(RM) – RF]
= 4.55% + 0.72 [13.83%4.55%]
= 11.27%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

McDonald’s Corp., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in thousands)
Common stock cash dividends 4,532,800 4,168,200 3,918,600 3,752,900 3,581,900
Net income 8,468,800 6,177,400 7,545,200 4,730,500 6,025,400
Revenues 25,493,700 23,182,600 23,222,900 19,207,800 21,076,500
Total assets 56,146,800 50,435,600 53,854,300 52,626,800 47,510,800
Shareholders’ equity (deficit) (4,706,700) (6,003,400) (4,601,000) (7,824,900) (8,210,300)
Financial Ratios
Retention rate1 0.46 0.33 0.48 0.21 0.41
Profit margin2 33.22% 26.65% 32.49% 24.63% 28.59%
Asset turnover3 0.45 0.46 0.43 0.36 0.44
Financial leverage4
Averages
Retention rate 0.38
Profit margin 29.11%
Asset turnover 0.43
Financial leverage
 
Dividend growth rate (g)5 0.00%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income – Common stock cash dividends) ÷ Net income
= (8,468,8004,532,800) ÷ 8,468,800
= 0.46

2 Profit margin = 100 × Net income ÷ Revenues
= 100 × 8,468,800 ÷ 25,493,700
= 33.22%

3 Asset turnover = Revenues ÷ Total assets
= 25,493,700 ÷ 56,146,800
= 0.45

4 Financial leverage = Total assets ÷ Shareholders’ equity (deficit)
= 56,146,800 ÷ -4,706,700
=

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.38 × 29.11% × 0.43 ×
= 0.00%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($296.10 × 11.27%$6.23) ÷ ($296.10 + $6.23)
= 0.00%

where:
P0 = current price of share of McDonald’s Corp. common stock
D0 = the last year dividends per share of McDonald’s Corp. common stock
r = required rate of return on McDonald’s Corp. common stock


Dividend growth rate (g) forecast

McDonald’s Corp., H-model

Microsoft Excel
Year Value gt
1 g1 0.00%
2 g2 0.00%
3 g3 0.00%
4 g4 0.00%
5 and thereafter g5 0.00%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 0.00% + (0.00%0.00%) × (2 – 1) ÷ (5 – 1)
= 0.00%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 0.00% + (0.00%0.00%) × (3 – 1) ÷ (5 – 1)
= 0.00%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 0.00% + (0.00%0.00%) × (4 – 1) ÷ (5 – 1)
= 0.00%