McDonalds Corp (MCD) is one of the few stocks in our 3000+ universe to get our Very Attractive Rating. To get this rating, MCD achieved (1) high and rising economic profits (as distinct from accounting profits**) and (2) a cheap valuation. As shown in our free report on MCD, the company’s ROIC is in the 2nd Quintile of all the companies we cover. At the same time, the stock boasts a 3.5% FCF Yield and our dynamic discounted cash flow analysis shows the current stock valuation implies that the market believes MCD’s profits will grow by just 10% over the entire remaining life of the company. In other words, the stock is priced for very little growth.
HIDDEN GEM: Our detailed valuation model shows that MCD grew its “economic” profits more than it accounting profits during its last fiscal year. Economic profits rose by $272mm while accounting profits rose by $238mm. For details on what causes the difference between Economic Versus Accounting Profits, see Appendix 3 on page 10 of our free report on MCD.
See Appendix 4 to learn how MCD increased NOPAT by cutting costs and increased its NOPAT Margin. See Appendix 5 for details on how MCD expanded its Invested Capital. Appendix 7 (in the Return on Invested Capital section) shows how the improved NOPAT Margin and steady Invested Capital Turns result in an increase in ROIC (to 13.6% from 13.4%) and Economic Profit, which rose by $272mm while Net Income rose by only $238mm.