SBUX - McDonald's: Debt Funded Payout-Ratio And Reignited Restaurant Growth
2024-05-20 15:00:30 ET
Summary
- MCD announced new long-term targets at the end of 2023, including restaurant expansion of 4-5% annually going forward.
- Traffic development is weak, while MCD increased prices faster than peers over the past decade. MCD expects comparable sales growth in line with GDP growth going forward.
- MCD can payout 125% of Free Cash Flow without weakening the balance sheet, resulting in enhanced shareholder returns.
- My DCF valuation leaves me to assume that MCD is very close to fairly valued, with a small margin of safety.
- The major risk is that we do not know if MCD will be able to achieve the optimistic restaurant growth targets.
Introduction
In my earlier articles on Starbucks (NASDAQ: SBUX ), I commented about one of SBUX's major peers in the restaurant industry, McDonald's (MCD). In my latest article on SBUX, I highlighted that MCD's store growth plans are bullish for SBUX because they show that, despite having an enormous global footprint, MCD expects to be able to keep growing store (or restaurant) count by 4-5% annually going forward.
Since I already referred to it in the past, this is a good time to dedicate a stand-alone article to MCD. Since the nature of the business is very similar, I will structure this article the same way as I did in my prior SBUX articles. This article will cover the following topics:
- Business model
- Restaurant growth
- Comparable sales
- Financials