MCD Stock Study (11-26-25)

Posted by Mark on May 5, 2025 at 06:57 | Last modified: November 26, 2025 09:28

I recently did a stock study on McDonald’s Corp. (MCD, $310.45).

M* writes:

     > McDonald’s is the largest restaurant owner-operator in the world,
     > with 2024 system sales of $131 billion across more than 43,000
     > stores and 115 markets. McDonald’s pioneered the franchise model,
     > building its footprint through partnerships with independent
     > restaurant franchisees and master franchise partners around the
     > globe. The firm earns roughly 60% of its revenue from franchise
     > royalty fees and lease payments, with most of the remainder
     > coming from company-operated stores across its three core
     > segments: the United States, internationally operated markets,
     > and international developmental/licensed markets.

Over the past decade, this large-size company has grown sales and earnings at annualized rates of 0.4% and 9.5%, respectively. Sales drop in four of five years through ’20 then climb in three of four years since. EPS declines in ’20, ’22, and dip in ’24. As a result, lines are converging, somewhat straight, and parallel especially since ’19. Five- (10-) year EPS R^2 is 0.68 (0.84) and Value Line (VL) gives an Earnings Predictability score of 85.

Over the past decade, PTPM leads peer and industry averages while climbing from 25.8% (’15) to 39.9% (’24) with a last-5-year mean of 37.3%. ROE lags peer and industry averages with a last-5-year mean of -122%. Debt-to-Equity is less than the industry but greater than peers while increasing from 77.3% to 108% with a last-5-year mean of 112%.

Quick Ratio is 0.82 and Interest Coverage 7.9 per M* (9.2 per VL) who assigns “Wide” Economic Moat, gives “Standard” rating for Capital Allocation, and an A grade for Financial Health (BI website). VL gives an A++ Financial Strength grade.

With regard to sales growth:

• YF gives YOY ACE 2.9% and 5.8% for ’25 and ’26, respectively (based on 32 analysts).
• Zacks gives YOY ACE 2.9% and 5.7% for ’25 and ’26, respectively (10 analysts).
• VL projects 5.9% annualized growth from ’24-’29.
• CFRA projects 2.8% YOY and 4.0% per year for ’25 and ’24-’26, respectively.
• M* gives 2-year annualized ACE of 4.2% and projects 5.9%/year from ’24-’29 (Equity Report).

My 2.0% forecast is below the range.

With regard to EPS growth:

• MarketWatch gives ACE 6.5% and 6.8%/year for ’24-’26 and ’24-’27, respectively (based on 40 analysts).
• Nasdaq.com gives ACE 9.3% and 9.8%/year for ’25-’27 and ’25-’28 [12 / 5 / 1 analyst(s) for ’25 / ’27 / ’28].
• Seeking Alpha projects 4-year annualized growth of 7.1%.
• Finviz gives ACE 5-year annualized growth of 7.0% (9).
• Argus projects 5-year annualized growth of 8.0%.
• LSEG gives LTG estimate of 7.1%.
• YF gives YOY ACE 3.5% and 9.0% for ’25 and ’26, respectively (38).
• Zacks gives YOY ACE 3.3% and 9.6% for ’25 and ’26 along with 5-year annualized growth of 7.4% (12).
• VL projects 9.6% annualized growth from ’24-’29.
• CFRA projects 3.5% YOY and 6.7% per year for ’25 and ’24-’26, respectively, along with a 3-year CAGR of 2.0%.
• M* gives long-term annualized ACE of 9.2% and projects 8.9%/year from ’24-’29 (Equity Report).

My 6.0% forecast is below the long-term-estimate range (mean of eight: 8.0%). Initial value is ’24 EPS of $11.39/share rather than 2025 Q3 EPS of $11.72 (TTM).

My Forecast High P/E is 24.0. Over the past 10 years, high P/E ranges from 24.3 in ’16 to 36.8 in ’20 with a last-5-year mean of 30.2 and a last-5-year-mean average P/E of 25.9. I am below the range.

My Forecast Low P/E is 18.0. Over the past 10 years, low P/E increases from 18.2 (’15) to 21.4 (’24) with a last-5-year mean of 21.6. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) is $220.00. Default ($205.00) based on initial value seems unreasonably low at 34.0% and 25.9% less than the previous close and 52-week low. My [arbitrary] selection is 29.1% and 20.4% less, respectively.

Over the past 10 years, Payout Ratio (PR) ranges from 52.3% in ’21 to 60.0% in ’19 with a last-5-year mean of 62.7%. I am forecasting below the range at 52.0%.

These inputs land MCD in the HOLD zone with a U/D ratio of 0.6. Total Annualized Return (TAR) is 5.5%.

PAR (using Forecast Average–not High–P/E) of 3.1% is less than the current risk-free rate (T-bills). If a healthy margin of safety (MOS) anchors this study, then I can focus on TAR albeit still less than I seek in a large-size company.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 39 studies done in the past 90 days (20 outliers including my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 4.3%, 8.8%, 27.9, 21.4, and 62.7%. I am lower across the board. VL projects a future average annual P/E of 24.5: less than MS (24.7) but greater than mine (21.0) [M* is a head-scratcher at 15.9].

MS high / low EPS are $17.75 / $11.36 versus my $15.24 / $11.39 (per share). My high EPS is less due to a lower growth rate. VL’s $18.50 high EPS soars above both along with M* $19.51.

MS LSPF of $240.80 implies a Forecast Low P/E of 21.2 versus the above-stated 21.4. MS LSPF is 1.0% less than the default $11.36/share * 21.4 = $243.10, which results in more conservative zoning. MS LSPF is 9.5% greater than mine, however.

MOS is robust in the study because my inputs are near or below historical/analyst averages/ranges.† Also backing this assessment are MS TAR exceeding mine by 6.9% per year and my lower LSPF.

With regard to valuation, PEG is 3.4 and 4.2 per Zacks and my projected P/E: quite overvalued (2.2 per M*). Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 1.02.

Per U/D, MCD is a BUY under $220/share. BI TAR criterion would be met [365.8 / ((12.67 / 100 ) +1 ) ^ 5] ~ $201 given a forecast high price ~$366.

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† — Head-scratcher aside.