Determining McDonald’s value is tough because McDonald’s admits 93% of its 38,000 locations worldwide are owned and operated by franchisees. That means McDonald’s does not own the stores or their locations. That practice limits the value to the fees the franchisees pay to the McDonald’s corporation. I calculate McDonald’s owns and operates 2,660 locations based on the numbers on their website.

Mr. Market still pays a lot for some stocks despite all the hysteria about a market crash. For example, Mr. Market paid $245.04 for McDonald’s (MCD) on 13 May 2022.

Cynics will wonder if America’s favorite burger emporium is worth $245.04 a share? Critics will call McDonald’s (NYSE: MCD) a fast-food dinosaur in a market full of quality burger chains and food delivery apps.

McDonald’s is making money. Mickey D’s reported a quarterly gross profit of $3.03 billion and a quarterly operating income of $2.312 billion on 31 March 2022. However, McDonald’s is less money, the quarterly gross profit fell from $3.175 billion on 31 December 2021 and the quarterly operating income fell from $2.397 billion on 31 December 2021.

Is McDonald’s Growing?

McDonald’s (MCD) value fell slightly over the past year. McDonald’s Total Assets shrank from $51.103 billion on 31 March 2021 to $50.878 billion on 31 March 2022. I think the assets shrank because McDonald’s has less cash.

Determining McDonald’s value is tough because McDonald’s admits 93% of its 38,000 locations worldwide are owned and operated by franchisees. That means McDonald’s does not own the stores or their locations. That practice limits the value to the fees the franchisees pay to the McDonald’s corporation. I calculate McDonald’s owns and operates 2,660 locations based on the numbers on their website.

If the numbers on McDonald’s website are accurate, McDonald’s is shrinking. To elaborate, Statista estimates McDonald’s had 40,031 restaurants in 2021. I imagine the numbers fell because McDonald’s closed all 850 of its Russian locations because of the Ukraine War.

Hence, the war is hurting McDonald’s before the effects of higher food prices and inflation hurts the restaurant. McDonald’s apologists will claim inflation can help the Golden Arches.

Will Inflation Hurt McDonald’s

The belief is that people with higher grocery and fuel costs are more likely to eat at cheaper places, such as McDonald’s.

The danger is higher ingredients and fuel costs could eat up any extra profits McDonald’s could make. Fuel prices hurt McDonald’s because the trucks that haul stuff to restaurants burn diesel and McDonald’s uses natural gas to cook the burgers.

The average diesel fuel price in the United States rose to $5.623 a gallon on 9 May 2022, the Energy Information Agency (EIA) estimates. That price rose from $5.144 a gallon on 4 April 2022.

Similarly, the Henry Hub Natural Stock price rose to $6.60 a million Btu (British Thermal Unit) in April 2022, the EIA estimates. In comparison, the Henry HUB Natural Gas Spot Price was $2.66 a million Btu in April 2021. Thus, natural gas prices rose by $4 in a year.

Hence, higher energy prices could eat McDonald’s profits and leave customers with less money to spend on Big Macs.

Is McDonald’s a Good Stock?

I consider McDonald’s (MCD) an overpriced stock that has some attractive features, including a high dividend.

 

McDonald’s has scheduled four $1.38 quarterly dividends through September 2023, for example. Hence, Dividend.com credits McDonald’s with a $5.52 forward dividend and a forward dividend yield of 2.26%.

 

I think McDonald’s is a stock to watch because of the dividend. However, I think Mr. Market overpriced Mickey D’s at $245.04.  

Originally published at https://marketmadhouse.com on May 13, 2022.

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  McDonald’s is generating less cash than in 2021. The quarterly ending cash flow fell from $3.02 billion on 31 March 2021. In contrast, the quarterly operating cash flow rose from $2.124 billion on 31 March 2021.
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