1. Alex Florea Steven Kahan Michael Lavin Eric Xu Yana Zalukina
Carol Zhou
December 3, 2009

2. Business Overview World’s #1 fast-food chain by sales Competitors:
Burger King Holdings, Inc.
Yum! Bands, Inc. (KFC, Pizza Hut, Taco Bell, Long John Silver’s, and A&W )
Wendy’s International, Inc.
Doctor's Associates, Inc. (Subway)
Products:
Hamburgers
Chicken sandwiches and products
French fries
Breakfast items
Salads
Soft drinks
Desserts
Source: (Assessed Nov. 15, 2009)
Yana

3. Fact Sheet Headquarters: Oak Brook, Illinois
32,278 restaurants in 118 countries (as of September 30, 2009):
Serves 47 million customers daily
Employs over 1.5 million people
Yana

4. Types of Restaurants Counter and drive-through services Locations:
Stand-alone basis in cities and suburban areas
Connected to gas stations/convenience stores
Shopping malls
Wal-Mart stores
Truck stops
Features indoor and outdoor playgrounds for children
Yana

5. Business Model 25,975 (80.5%) operated by franchisees and affiliates
6,303 (19.5%) operated by the Company
Collects from franchisees:
Initial investment fees
Royalties (% of sales)
Rent (% of sales)
Supply food and materials to restaurants through approved 3rd parties
Yana

6. Geographical Revenue Breakdown
Yana
APMEA: Asia/Pacific, Middle East and Africa
Other Countries and Corporate: includes operations in Canada and Latin America, as well as Corporate activities

7. Macroeconomic Outlook
McDonald's looks to compete in the high-margin beverages market with "McCafe”.
Separate niches with McDonald's being the better value proposition and Starbucks offering more of a quality experience.
Strong International Growth is Driving Sales.
60% of sales occur outside of the United States.
Changes in consumer preferences could decrease sales.
Consumer preferences continue to gravitate towards more nutritional food.
Commodity Costs can Impact Margins.
Since 2005, food prices have increased substantially, but competition has prevented McDonald's from passing costs along to customers. Thus, increasing input prices have come at the expense of margins.
Sensitive to the Dollar.
Higher translated value.
Michael

8. Industry Overview
Industry performance continued to be battered by economic recession.
Society's increasing awareness of the health risks associated with a high fat, salt and sugar diet.
Total market saturation
Intense competition
Low level of concentration
Carol

9. Major Players
Carol

10. SWOT Analysis
Carol

11. 5-Year Historical Performance
Eric
Nov 24, 2009

12. Recent News
Sep. 24: raised quarterly cash dividend by 10%; (McDonald's has raised its dividend each and every year since paying its first dividend in 1976)
Oct. 22: third quarter sales in every area of the world increase by around 2%-3%
Nov. 13: Chicago Tribune News (compete in low-price market; lower gross margin at least in a short term period)
Eric

13. Ratio Analysis Michael McDonald's Corp. Compared with Industry 2004
Compared with Industry
2004
2005
2006
2007
2008
Comp. Sales Growth
6.90%
3.90%
5.70%
6.80%
Very High
Sales per Restaurant
1.56M
1.67M
1.83M
2.40M
2.55M
High
Net Profit Margin
11.94%
12.68%
16.39%
10.53%
18.34%
Current ROE
32.90%
Average
Current Dividend Yield
3.50%
Michael
Net Profit Margin
Comp. Sales Growth
Sales per Restaurant
ROE
November 30, 2009

14. Income Statement Assumptions
Forecast
2009
2010
Growth for company-operated sales
-1.00%
2.00%
7.00%
Growth for franchised revenues 2%
10%
12%
cost of good sold % of rev
62%
Growth of SG&A 6%
Income tax rate
30%
Eric

15. WACC Calculation CAPM ROE beta 0.61 21.42% risk-free 3.50%
equity premium
5.50%
6.83%
cost of debt
4.11%
Goal Post (40%,60%)
12.41%
Steven

16. Discounted Cash Flow 2009E 2010E 2011E 2012E 2013E 2014E FCF 3,181.70
3,570.74
3,941.22
4,462.02
5,049.50
5,708.95
Terminal Value
FCF Exit Multiple
20.52
117,139.70
Perpetuity Growth
62,471.19
68,180.14
Discount Rate
12.41%
PV of FCF's
3,176.45
3,118.89
3,141.13
3,162.19
37,982.31
Sum of FCFs
53,762.67
DCF Valuation
Exit Multiple
PV of Firm
84,217.81
Less Net Debt
12,052.00
Equity Value of Firm
41,710.67
72,165.81
Shares Outstanding
1,079.19
Value per Share
38.65
66.87
Alex

17. Football Chart
Alex

18. Management Assessment
The management has been consistent in its dividend policy: till date company has returned approximately $11.5 billion.
Management reviews and analyzes business results in constant currencies however we believe the company has been conservative in hedging the currency risk.
Management continues to focus on the mix of franchised and company-owned operations to boost the competitive margin.
McCafe had met sales expectations and has benefited from the high level of advertising that McDonald's has committed to it. Coffee sales now make up 5% of McDonald's total sales.
Steven

19. Recommendation
Holdings in McDonald’s are currently 200 shares bought at $52.44
Closing price on November 30, 2009 was $63.25
Using a triangulation of the methodologies, the calculated intrinsic value is $61.05
Qualitative factors:
MCD is a very attractive company
The stock is at an all time high
MCD might outperform the market and its peers during a market correction.
HOLD
Steven