McDonald's CorporationMCDNYSE

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DCF Valuation

DCF Valuation Summary

Buy

Fair Value: $415.04 per share(market-calibrated)

+24.0%

Upside to Fair Value

Current

$334.82

Pure Model

$446.40

Fair Value

$415.04

Bull Case

$606.15

Bear Case

$323.78

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

1.44%

Calibrated Growth

2.61%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $446.40.

What's Driving This Ratingfor MCD

↓

CapEx normalizing toward maintenance

Historical CapEx is 9.25% of revenue (heavy investment phase). Model fades this to 4.00% by Year 10, freeing up ~$2.2B in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 44.42% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 6.70% revenue growth, fading to 3.00% by Year 10. Revenue reaches $41.0B (vs $26.9B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $516.66/share (38.2x terminal FCF) while exit multiple gives $376.14/share (27.1x terminal FCF). The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 1.44% perpetual growth — 156bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 73.88% indicates efficient cash generation. FCF reaches $15.7B by Year 10 (38.33% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.53

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)6.88%

Cost of Debt

Pre-tax Cost of Debt2.00%

Tax Rate21.42%

After-tax Cost of Debt1.58%

Equity Weight (E/V)77.77%

Debt Weight (D/V)22.23%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (77.77% × 6.88%) + (22.23% × 1.58%)

= 5.70%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$28.7B	$31.7B	$34.5B	$37.2B	$41.0B
EBIT	$12.7B	$14.1B	$15.3B	$16.5B	$18.2B
Tax	$2.7B	$3.0B	$3.3B	$3.5B	$3.9B
NOPAT	$10.0B	$11.1B	$12.0B	$13.0B	$14.3B
+ Depreciation	$2.1B	$2.4B	$2.6B	$2.8B	$3.1B
- Capex	$2.7B	$2.6B	$2.4B	$2.1B	$1.6B
- Δ NWC	$20M	$16M	$16M	$15M	$13M
Free Cash Flow	$9.5B	$10.9B	$12.2B	$13.6B	$15.7B
Discount Factor	0.946	0.847	0.758	0.678	0.575
Present Value	$9.0B	$9.2B	$9.3B	$9.2B	$9.0B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$15.7B

Terminal Growth Rate3.00%

WACC5.70%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$599.6B

PV of Terminal Value$344.5B

Exit Multiple Method

Year 10 EBITDA$21.3B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$425.1B

PV of Terminal Value$244.2B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$91.6B

PV of Terminal Value$344.5B

Enterprise Value$436.1B

(-) Net Debt$67.5B

Equity Value$368.6B

Shares Outstanding713M

Price per Share$516.66

Exit Multiple Method

PV of Projected FCFs$91.6B

PV of Terminal Value$244.2B

Enterprise Value$335.8B

(-) Net Debt$67.5B

Equity Value$268.3B

Shares Outstanding713M

Price per Share$376.14

Pure Model Fair Value

$446.40

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
3.70%	$626.36	$597.22	$569.44	$542.97	$517.72
4.70%	$491.91	$553.32	$569.44	$542.97	$517.72
5.70%	$379.39	$407.66	$446.40	$502.77	$517.72
6.70%	$308.10	$323.67	$343.45	$369.42	$405.01
7.70%	$257.13	$266.67	$278.23	$292.55	$310.74

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$323.78

-3.3% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.66

Base Case

$446.40

33.3% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 0.53

Bull Case

$606.15

81.0% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.45

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Consumer Cyclical Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth6.70%

Year 3 Revenue Growth4.60%

Year 5 Revenue Growth4.26%

Year 7 Revenue Growth3.76%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin44.42%

Terminal EBIT Margin46.10%

Tax Rate21.42%

Historical Capex / Rev9.25%

Terminal Capex / Rev4.00%

NWC / Revenue1.11%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 20x EV/EBITDA (Consumer Cyclical sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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