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McDonald's Corp MCD

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Broad Strength and Elevated Off-Premises Sales Augur Well for McDonald's; Shares Fairly Priced

Sean Dunlop Equity Analyst

Analyst Note

| Sean Dunlop |

Wide-moat McDonald's reported strong third-quarter earnings, with two-year comparable-store sales of 14.6%, 8.9%, and 4.9% in the firm's U.S., internationally operated markets, and international licensed market segments, respectively--all in excess of our expectations (8.4%, 7.5%, and 0.7%). The firm continues to benefit from strength in its crispy chicken sandwich platform, its Famous Orders marketing campaigns, and incremental purchases driven by the MyMcDonald's rewards program launch. While labor market pressure and supply chain outages pinched results (company-owned restaurant margins dropped 100 basis points sequentially to 19.3%), we're encouraged by the firm's ability to pass through the bulk of costs via 6% menu price increases while carefully evaluating customer receptivity--attesting to the strength of the firm's value proposition. We anticipate a low-single-digit increase to our $234 fair value estimate and view shares as fairly valued.

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Company Profile

Business Description

McDonald’s is the largest restaurant owner-operator in the world, with trailing 12 month system sales of $109 billion (as of the third quarter of 2021) across 39,680 stores and 119 countries. McDonald’s pioneered the franchise model, building its impressive footprint through partnerships with independent restaurant franchisees around the world. The firm earns nearly 60% of its revenue from franchise royalty fees and lease payments, with the remainder coming from company-operated stores across its three core segments: the United States, internationally operated markets, and international developmental/licensed markets. McDonald’s owns 55% of the real estate and 80% of the buildings in its franchise system, offering it substantial leverage in maintaining quality standards and consistency.

Contact
110 North Carpenter Street
Chicago, IL, 60607
T +1 630 623-3000
Sector Consumer Cyclical
Industry Restaurants
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 200,000

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