DCF Conclusion Study on McDonalds (MCD)
MCD: Top 10 Weighted Stock inside the Dow
Hi Everyone!
Welcome back to another DCF Conclusion Study on important names within the Dow to help us build out our edge on upside/downside parameters at the index level.
Today we cover McDonalds (MCD), which is the Dow’s #9 most important component within the index with a 4.2% weight.
As you can see below (a meme photo), McDonalds’ pricing has made its way into internet forums about how expensive their food has gotten.
MCD used to be a place where fast food was considered to be very affordable by the masses, but their corporate strategy on menu pricing to pin their margins at the highs has potentially backfired among consumers.
Below, we talk about whether MCD’s selloff in 2024 has gotten overdone, and whether shares are primed for some relief in the foreseeable future.
McDonalds DCF Discussion/Context
Interesting Fact: One of the secrets to unlocking real value if eating at McDonalds is to take advantage of the deals inside their mobile app.
I personally like McDonalds for a quick snack, and I find their mobile app to definitely have good value if I’m looking for fries, a combo meal, or their apple pies selection.
Wall Street estimates that only about 15% of McDonalds consumers (like myself) order through the app. The other 85% of MCD customers order through drive-thru or in-person cashiers, where menu pricing can often be 50% greater than certain items offered from the mobile app. In order to increase the perception among diners that MCD offers good value, MCD is making a huge technological push to have more consumers recognize the deals that the fast-food chain puts out.
This process is likely to take time. In the meantime, consumers now have a perception that MCD doesn’t offer as much value for their meals as much as before.
The result? Corporate high historical margins, but very limited room for margin expansion from here unless there is deeper menu strategy in alignment with consumer preferences.
Exhibit 1: DCF Core Figures from 2024
Here are the conclusions that I’m drawing: