A Conservative View Of McDonald's Future

In a previous article I highlighted the impressive investment history of McDonald's (NYSE:MCD) along with why this history would be quite difficult to repeat. The basic idea was that McDonald's had a variety of components working in its favor over the past decade: an increasing profit margin, greatly reduced share count, higher earnings multiple and an expanding dividend payout ratio. These factors allowed 2% annual revenue growth turn into 15% yearly investment gains.

In the past McDonald's had all of these components working in its favor to turn 2% yearly revenue growth into 15% annual investor returns. In the future you might expect the margins, share repurchases and dividend to continue to play a positive role in the process, while the valuation multiple could be a drag. From this view you get vastly different results: the same 2% annual revenue growth, but investor returns that come in at "just" 4% to 5%. Of course this is no great tragedy - a $10,000 investment could still be expected to turn into $15,000 - but it's certainly a far cry from what was previously achieved. A conservative view of McDonald's future (based on current pricing) reveals a positive, but perhaps not compelling story.

Source: Seeking Alpha

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