McDonald's (MCD) Has 20% Upside and Just 5% Downside
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Price: $101.03 -0.7%
Rating Summary:
7 Buy, 10 Hold, 0 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 21 | Down: 24 | New: 29
Rating Summary:
7 Buy, 10 Hold, 0 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 21 | Down: 24 | New: 29
Trade MCD Now!
McDonald's (NYSE: MCD) is lagging the market Thursday despite very bullish commentary from analysts at Deutsche Bank.
The firm said the market is undervaluing the model which is "the most stable in the world," with the majority of earnings (~75%) coming from rent+royalty payments generated by a healthy franchisee base. They think the market is undervaluing the predictability of these cash flows, as well as the company's track record of managing through difficult macro environments, including Europe.
The sum-of-the-parts valuation is an "eye-opener." the firm said. Explaining this the firm notes: "To justify the current valuation on next year’s earnings (14.4x P/E; 9.2x EV/EBITDA), one needs to assume that the franchise model is much riskier than we once thought or that the company-operated stores have very little value. For example, using a multiple of 12x EV/EBITDA for the franchised income stream, we estimate the implied valuation for MCD’s company-operated EBITDA is just 4x. This compares to the restaurant industry avg. of 9x and seems way too punitive for a portfolio of this caliber and considering that 28% of the co.-operated restaurants are located in the high-growth markets of China and Russia."
The risk/reward is also very favorable, the firm said, with 20% upside and just 5% downside.
The firm reiterated their Buy rating and price target of $100.00.
For an analyst ratings summary and ratings history on McDonald's click here. For more ratings news on McDonald's click here.
Shares of McDonald's are down fractionally to $88.41.
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The firm said the market is undervaluing the model which is "the most stable in the world," with the majority of earnings (~75%) coming from rent+royalty payments generated by a healthy franchisee base. They think the market is undervaluing the predictability of these cash flows, as well as the company's track record of managing through difficult macro environments, including Europe.
The sum-of-the-parts valuation is an "eye-opener." the firm said. Explaining this the firm notes: "To justify the current valuation on next year’s earnings (14.4x P/E; 9.2x EV/EBITDA), one needs to assume that the franchise model is much riskier than we once thought or that the company-operated stores have very little value. For example, using a multiple of 12x EV/EBITDA for the franchised income stream, we estimate the implied valuation for MCD’s company-operated EBITDA is just 4x. This compares to the restaurant industry avg. of 9x and seems way too punitive for a portfolio of this caliber and considering that 28% of the co.-operated restaurants are located in the high-growth markets of China and Russia."
The risk/reward is also very favorable, the firm said, with 20% upside and just 5% downside.
The firm reiterated their Buy rating and price target of $100.00.
For an analyst ratings summary and ratings history on McDonald's click here. For more ratings news on McDonald's click here.
Shares of McDonald's are down fractionally to $88.41.
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