Morningstar

McDonald's Top-Line Momentum Continues

No changed planned for our fair value estimate, as we see shares as fairly valued today.

Securities In This Article
McDonald's Corp
(MCD)

Wide-moat

With the completion of its China/Hong Kong refranchising, McDonald's restaurant base is now 91% franchised and nearing management's 2018 target of 93%. Excluding refranchising gains, operating margins were 38.7%, and we believe McDonald's remains on track for mid-40s operating margins by 2019. While delivery and mobile order and pay investments will weigh on U.S. restaurant margins in the near future, we expect this to be more than offset by the impact of refranchising and operating leverage from the aforementioned top-line layers.

We're not planning material changes to our $165 fair value estimate. While shares strike us as fairly valued, we don't see many downside catalysts on the horizon, with velocity accelerators becoming more significant contributors and cash return levels set to accelerate as refranchising/EOTF efforts taper.

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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