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General Meeting 2

September 18, 2012

Meeting Agenda

Introduction of new officers Market/Portfolio Update Stock Pitch Announcements

Leadership Team
Logistics
Sloane Bain

Membership
Simi Kavthekar Lisa Kao

Treasurer
Zoe Mirtsching

Technology
Blake Johnson Sean Chan

Market Overview

Federal Reserve and QE3


Additional $45 billion in bond buying monthly
Total $85 billion

Egan-Jones downgrades US credit rating


Down to AA- from AA

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

Where do you look to invest?

Blue chip value stocks that consistently outperform in both bull and bear markets

Investment Thesis

Industry Analysis

Threats of New Entrants

Bargaining Power of Buyers

Power of Suppliers

Is this industry profitable?

Where is it going?
Threats of Substitutes

Industry Analysis

U.S. Sales at Quick-Service Restaurants


Year 2006 2007 2008 2009 2010 2011 2012 (fore.) 2013 (fore.) 2014 (fore.) 2015 (fore.) 2016 (fore.) Sales at current prices $billion 153.6 159.4 166.3 168.9 173.0 178.7 185.0 191.7 199.3 207.5 215.4 % annual change 3.8 4.3 1.6 2.4 3.3 3.5 3.7 4.0 4.1 3.8

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

Why McDonalds (MCD)?

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 $-

34,000 33,000 32,000 31,000 30,000 29,000

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

27.94 23.65 26.12 60.59 14.17 18.59 $137.65 40.0%

2.38 2.32 3.55 5.73 0.51 3.76 $94.12 -4.3%

10.51 8.92 9.53 30.06 0.98 6.97 $134.27 36.5%

1.56 1.61 1.79 2.38 1.04 1.79 $98.34 0%

13.2 11.7 14.4 29.12 7.65

18.01 18.14 17.75 35.24 11.33

11.08 12.92 $127.81 $135.10 30.0% 37.4% $121.22 23.07%

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

Discounted Cash Flow


Projected 2013 2014 $29,774.1 $30,965.1 $10,928.6 $11,278.3 $18,845.5 $19,686.8 63.3% 63.6%

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

Major Futures Indices as of 4/4/2012

CPI for Food- Economics Research Service

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

Restaurant Failure Rate

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

Licensing/Growth Rate Proof

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

Cater to International Clientele


A recent example is in France where McDonalds is coming out with a baguettebased burger, called the Mc Baguette, Cekerevac. In 14 European countries alone, McDonalds has 20 different menus that have been tweaked slightly to better fit in with the local market. adds a local flavor, but it also drives corporate earnings and margins, as these products are being charged at a slight premium to McDonalds regular menu. (Both points from Open PR Worldwide Public Relations website Profit Confidential is Lombardi Publishing Corporations free daily investment e-letter. Profit Confidential 350 5th Avenue, 59th Floor New York, NY 10118)

Limited Product Expansion

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

United States 42% of Restaurants $32% of sales 5% increase in sales

Europe APMEA 21% of Restaurants 26% of Restaurants $40% of sales 22% of sales 14% increase in sales increase in sales 19%

Other Americas 11% of Restaurants 6% of sales 18% increase in sales

Normalized Percent Appreciation S&P 500 vs. MCD

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

DCF Forecast Rates

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

Ticker Symbol AFCE BWLD CMG DPZ

Stock Price 17.22 88.24 418.98 36.96

EPS $0.99 $2.75 $6.89 $1.79

P/E 17.54 31.13 60.59 22.17

P/S 2.71 2.03 5.73 1.34

P/B 30.06 5.02 12.46 NA

PEG 1.07 1.32 2.38 1.70

EV/EBITDA 10.27 12.33 29.12 12.5

EV/EBIT 11.33 20.57 35.24 13.66

Jack In The Box Inc


Sonic Corp Starbucks Corp The Wendy's Co Yum! Brands 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

8.63% 2.19% 6.44% 0.643 6.33% 2.76%

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%

4.60% 4.60% 2.59% 1.74% 4.50% 5%

Recent Share Price Speculation

The trend is your friend

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

Happy Meal vs. Competitors

Trefis

MCD Analyst Targets

MCD Overview

MCD Price Chart

Q&A

Announcements

Announcements
Sign Up for IM Soccer! Sit with your teams next week! Dinner after meeting TONIGHT @ Jester Pay Dues Capital One Microcredit Finance Case Comp UIA Stock Pitch Competition texasuia.org Road Trip Student Organization Tailgate - 29th

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