Professional Documents
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Meeting Agenda
Leadership Team
Logistics
Sloane Bain
Membership
Simi Kavthekar Lisa Kao
Treasurer
Zoe Mirtsching
Technology
Blake Johnson Sean Chan
Market Overview
Innocence of Muslims
Nakoula Bassely Nakoula Riots Across the Middle East
Egypt Libya Afghanistan
Smartphones on Smartphones
Apple Releases iPhone 5Hits $700/share Nokia Releases Nokia Lumia 920 LG Releases Optimus G
Other Headlines
Goldman Ends Two-Year Analyst Program The 47 Percent
Commodity Prices
Investment Thesis
Blue chip value stocks that consistently outperform in both bull and bear markets
Investment Thesis
Industry Analysis
Power of Suppliers
Where is it going?
Threats of Substitutes
Industry Analysis
Source: Mintel/based on U.S. Census Bureau, Economic Census; Bureau of Economic Analysis, National Income and Program Accounts; GE Capital, Franchise Finance, "Chain Restaurant Industry Review"; company annual reports
Proven Brand
Licensing Agreements
Innovative Menu
Proven Brand
Licensing Agreements
Innovative Menu
Key Statistics
Earnings History
$6,000 $5,000 $4,000 $3,544 2,395 4,313 4,551 4,946 5,503 30,000 25,000 20,000 15,000 Key Takeaways 10,000 5,000 0 2006 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011
Historical Revenue
Franchised Company-
$3,000
$2,000 $1,000 $-
15% increase in EPS Operating Margin Total Restaurants29% 6 Year revenue growth 35.0% 31.0% (12% in the last year) 27.4% 30.1% 30.0% Expanding 25.0% 21.2% base restaurant 17.0% 20.0% Rising profit margins 15.0%
10.0% 5.0% 0.0%
31.6%
2006
2007
2008
2009
2010
2011
2006
2007
2008
2009
2010
2011
Company Comparables
P/E
P/S
P/B
PEG
EV/EBITDA EV/EBIT
Mean Median Weighted Average High Low McDonald's Corp Implied Share Price Discount (Premium) Implied Share Price Discount MCD $98.62 $5.27
Company Comparables
$160.0 $140.0 $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $0.0 P/E P/S P/B PEG EV/EBITDA EV/EBIT
$98.64
Revenue Cost of Sales Gross Profit Gross Margin SG&A Expenses EBIT EBIT Margin NOPAT D&A Change in NWC CapEx FCF DCF Terminal Value Enterprise Value
2011 2012 $27,006.0 $28,356.3 $10,231.6 $10,579.5 $16,774.4 $17,776.8 62.1% 62.7%
2015 $31,894.0 $11,560.3 $20,333.8 63.8% $9,993.79 $10,340.0 32.4% $6,927.8 $1,513.3 ($225.0) $3,107.1 $5,558.9 $4,573.4
2016 $32,531.9 $11,791.5 $20,740.4 63.8% $10,193.67 $10,546.8 32.4% $7,066.3 $1,513.3 $150.0 $3,107.1 $5,322.5 $4,170.3 $ 133,625.04 $ 125,896.49
Assumptions WACC Tax Rate Exit Multiple Share Price $ Calculations Enterprise Value Less Net Debt Equity Value Shares Outstanding Value Per Share Implied Discount $ $ 125,896.49 $ 10,164.70 $ 115,731.79 1018.6 113.62 15.19% 5% 33% 11.08 98.62
$8,342.6 $8,843.16 $9,329.53 $9,702.71 $8,431.8 $8,933.7 $9,516.0 $9,984.1 31.2% 31.5% 32.0% 32.2% $5,649.3 $1,329.6 ($550.0) $2,730.0 $4,798.9 $5,985.6 $1,412.4 $750.0 $2,900.0 $3,748.0 $3,569.5 $6,375.7 $1,468.9 ($575.0) $3,016.0 $5,403.6 $4,901.2 $6,689.3 $1,498.3 $500.0 $3,076.3 $4,611.3 $3,983.4
Industry Risks
Dietary Habits Health Regulations
Technical Analysis
Key Takeaways
Implement a trailing stop-loss strategy with a 10% retracement as the sell point
Ideal method to capitalize on growth and account for unlikely losses
Q&A
Appendix (18)
19) Major Futures Indices as of 4/4/2012 35) MCD Analyst Targets 20) CPI for Food- Economics Research Service 36) MCD Overview 21) Restaurant Failure Rate 37) MCD Price Chart 22) Licensing/Growth Rate Proof 23) Cater to International Clientele 24) Limited Product Expansion 25) Global Presence 26) Normalized Percent Appreciation S&P 500 vs. MCD 27) Company Comparables 28) DCF Forecast Rates 29) Comparables Peers 30) Forecast Growth 31) WACC Calculations 32) Recent Share Price Speculation 33) Happy Meal vs. Competitors 34) Trefis
The CPI for all food is projected to increase 2.5 to 3.5 percent in 2012 The average annual increase for food-at-home prices between 1990 and 2011 was 2.8 percent, and ERS's current outlook for 2012 falls within the historical average for food price inflation. McDonald's is the single largest purchaser of beef, pork, potatoes, and apples.
http://www.ers.usda.gov/briefing/cpifoodandexpenditures/consumerpriceind ex.htm
Several years ago, researchers at Cornell University and Michigan State University conducted a study of restaurants in three local markets over a 10year period. They concluded the following: After the first year 27% of restaurant startups failed; after three years, 50% of those restaurants were no longer in business; and after five years 60% had gone south. At the end of 10 years, 70% of the restaurants that had opened for business a decade before had failed. http://www.restaurantowner.com/public/302.cfm
The numbers, courtesy of food industry research group Technomic, dont lie: McDonalds sales are up 26% over the past five years compared to Wendys 9% growth rate (Burger King, meanwhile, has been flat). http://www.usatoday.com/money/industries/food/story/2012-0319/wendys-not-burger-king-number-2/53650010/1
Risk of its core menu of burgers, chicken, and fries becoming stagnant and old.
Items such as the McRib, Shamrock Shake, and Chicken McBites are added to the menu at specific times
Strategy keeps the classics available, while maintaining a fresh menu.
Global Presence
Europe APMEA 21% of Restaurants 26% of Restaurants $40% of sales 22% of sales 14% increase in sales increase in sales 19%
Company Comparables
33,510 Restaurants (6,435 company Growth owned) $27B in total revenue $67.6B in franchised sales 2.8% Dividend yield $4.8B Free cash flow ($7.2B cash from operation)
Global comparable sales up 5.6% 2011 Snapshot Global guest counts up 3.7% 15% increase in EPS 14% increase in operating income 12% revenue increase
Forecasted Growth Rates 2012 Revenue Cost of Sales SG&A PP&E (3.35% D&A) CapEx 6% 3% 6% 6.23% 6.23% 2013 5% 2.5% 5% 5% 5% 2014 4.2% 2.4% 4.2% 4% 4% 2015 3.6% 2.0% 3.6% 3% 3% 2016 3.2% 2.0% 3.2% 2% 2%
Comparables Peers
Stock Name AFC Enterprises Buffalo Wild Wings Inc Chipotle Mexican Grill Inc Domino's Pizza Inc
JACK
SONC SBUX WEN YUM
23.95
7.67 56.66 5.01 70.15
$1.63
$0.31 $1.66 $0.02 $2.81
22.83
14.17 34.49 33.49 24.47
0.51
0.86 3.5 0.75 2.62
2.53
9.88 8.92 0.98 17.78
1.29
1.04 1.73 1.51 1.75
8.2
7.65 19.23 8.31 13.35
16.84
11.41 26.08 14.49 17.6
McDonald's Corp
MCD
98.64
$5.27
18.59
3.76
6.97
1.79
11.08
12.92
Forecast Growth
Forecasted Growth Rates 2012 Revenue Cost of Sales SG&A PP&E (3.35% D&A) CapEx 5% 3.4% 6% 6.23% 6.23% 2013 5% 3.3% 5.5% 4% 4% 2014 4% 3.2% 4% 2% 2% 2015 3% 2.5% 3% 1% 1% 2016 2% 2% 2% 0% 0%
WACC Calculations
Cost of Equity: Market Rate (Rm) Risk Free Rate (Rf) Market Premium (Rm-Rf) Beta Cost of Equity Weighted Cost of Equity
Assumptions Beta 10-Year Bond Equity Debt 0.643 2.19% 43.6% 56.4%
Tax Rate
Cost of Debt: Weighted Interest Rate Cost of Debt: Weighted Cost of Debt After Tax Cost of Debt WACC Rounded WACC
33%
Historical share price growth indicates future share price growth Exe: MSFT, GOOG, AAPL, Speculation is primarily over new CEO and recent sales miss; However, we expect share price to correct itself soon. We are taking advantage of a decline in share price which we feel will correct itself in the in the near future
Trefis
MCD Overview
Q&A
Announcements
Announcements
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