Insights

• McDonald's revenue and profitability are subject to fluctuations, with a decreasing trend observed in the most recent quarter, reflecting a challenging macroeconomic environment.
• Despite recent margin pressures, McDonald's profitability remains significantly higher than the industry average, indicating efficient operations and a strong brand.
• The company's strategic initiatives, such as menu innovation, digital enhancements, and restaurant development, are crucial for driving future revenue growth and profitability.
• McDonald's maintains a manageable level of debt, but its aggressive capital return policies may need to be monitored for long-term sustainability.
• Key metrics to monitor include revenue growth, profitability margins, working capital management, and the debt/EBITDA ratio.

Analysis

• Revenue - Revenue has been fluctuating, with a recent decrease, indicating potential challenges in maintaining sales growth. - The company's strategic initiatives, such as menu innovation and digital enhancements, are aimed at driving revenue growth. - Macroeconomic conditions and consumer spending patterns are key factors influencing revenue performance.

  • Profitability

    • Profitability margins (gross, net, and EBITDA) have been decreasing, suggesting potential pressure on earnings.
    • Despite the decrease, McDonald's profitability margins remain significantly higher than the industry average, reflecting efficient operations and strong brand value.
    • Unusual expenses have impacted the company's earnings and should be considered when assessing sustainable performance.

  • Liquidity

    • The current ratio indicates an adequate ability to meet short-term obligations, but it is slightly below the industry average.
    • Working capital management has been volatile, impacting operating cash flow and liquidity.
    • Maintaining a healthy liquidity position is crucial for navigating macroeconomic uncertainties and funding strategic initiatives.

  • Solvency

    • The debt/EBITDA ratio suggests a manageable level of debt relative to earnings, indicating a healthy solvency position.
    • Long-term debt has remained relatively stable, reflecting a consistent approach to long-term financing.
    • The company's ability to generate consistent cash flow supports its debt obligations.

  • Operational Efficiency

    • McDonald's demonstrates strong operational efficiency, as reflected in its high profitability margins compared to the industry average.
    • The company's strategic investments in technology and restaurant development are aimed at further enhancing operational efficiency.
    • Effective cost management and pricing strategies are essential for maintaining profitability margins.

  • Cash Flow Analysis - Operating cash flow has fluctuated, influenced by net income and changes in working capital. - Investing activities have been consistently negative due to capital expenditures and acquisitions. - Financing activities have been consistently negative due to dividend payments and share repurchases.

  • Risk Factors

    • Macroeconomic conditions and consumer spending patterns pose a risk to revenue growth and profitability.
    • Fluctuations in working capital management could impact operating cash flow and liquidity.
    • The company's aggressive capital return policies may need to be monitored for long-term sustainability.

  • Future Outlook

    • McDonald's future performance will depend on its ability to navigate macroeconomic challenges and execute its strategic initiatives.
    • Revenue growth is expected to be driven by menu innovation, digital initiatives, and market expansion.
    • Profitability margins will be influenced by cost management, pricing strategies, and product mix.
    • Maintaining a balance between returning capital to shareholders and preserving financial flexibility will be essential for long-term sustainability.

Benchmarks (as of 2025-05-02)

• Performance Comparison:

  • McDonald's Corp. (MCD) has shown mixed performance compared to The Communication Services Select Sector SPDR Fund (XLC). Year-to-date, MCD has outperformed XLC by 6.83%, with returns of 7.27% versus 0.44%. However, over longer periods such as 1 year, 2 years, and 3 years, MCD has underperformed XLC. Specifically, over the past 2 and 3 years, MCD has significantly underperformed XLC, with differences of -59.15% and -29.11%, respectively. This suggests that while MCD has shown recent strength, XLC has provided better returns over longer investment horizons.

• Risk and Return Analysis:

  • The annualized returns show that McDonald's Corp. (MCD) has consistently provided lower returns than The Communication Services Select Sector SPDR Fund (XLC) over the 1, 2, and 3-year periods. For example, the 2-year annualized return for MCD is 5.21% compared to 30.32% for XLC, a difference of -25.11%.
  • McDonald's Corp. (MCD) generally exhibits lower annualized volatility compared to The Communication Services Select Sector SPDR Fund (XLC) across the reported periods. For instance, in Q2 2022, MCD's volatility ranged from 19.19% to 27.27%, while XLC's ranged from 32.75% to 39.14%. This indicates that MCD is the less risky investment.
  • The maximum drawdown for McDonald's Corp. (MCD) was -17.21% on 2024-07-09, while the maximum drawdown for The Communication Services Select Sector SPDR Fund (XLC) was -46.65% on 2022-11-03. This indicates that XLC experienced significantly larger peak-to-trough declines than MCD, further supporting the conclusion that MCD is the less risky investment.

• Risk-Adjusted Performance:

  • The Sharpe Ratios for The Communication Services Select Sector SPDR Fund (XLC) are generally higher than those for McDonald's Corp. (MCD), especially from Q4 2023 onwards. This indicates that XLC has offered better risk-adjusted returns compared to MCD during these periods.
  • The Beta values for McDonald's Corp. (MCD) are consistently below 1, indicating that MCD is less volatile than the market. The Beta values for The Communication Services Select Sector SPDR Fund (XLC) are generally around or above 1 until Q4 2024, showing that XLC is as or more volatile than the market, but drop below 1 in Q1 and Q2 2025.

• Overall Assessment:

  • McDonald's Corp. (MCD) presents a lower-risk investment option compared to The Communication Services Select Sector SPDR Fund (XLC), as evidenced by its lower volatility and smaller drawdowns. However, XLC has provided higher returns and better risk-adjusted performance (Sharpe Ratio) over longer periods. The recent trend shows that XLC's Sharpe Ratios are consistently higher than MCD's, indicating a sustained trend of better risk-adjusted performance.
  • Investors seeking stability and lower risk may prefer MCD, while those looking for higher growth potential and better risk-adjusted returns may opt for XLC.

Peers Price History(as of 2025-05-02)

• Performance Comparison:

  • McDonald's Corp. (MCD) has shown mixed performance compared to Chipotle Mexican Grill, Inc. (CMG) and Starbucks Corp. (SBUX). Year-to-date, MCD has outperformed both CMG and SBUX, with a return of 7.27% compared to CMG's -13.91% and SBUX's -7.62%. However, over longer periods like 2 and 3 years, MCD has underperformed CMG but outperformed SBUX. For example, over 3 years, MCD's return is 35.9% compared to CMG's 78.1% and SBUX's 22.24%.
  • MCD's performance has been inconsistent relative to its peers, with periods of outperformance and underperformance depending on the time frame.

• Risk and Return Analysis:

  • The annualized returns of MCD have been lower than CMG over 2 and 3-year periods but higher than SBUX. For example, the 3-year annualized return for MCD is 10.77%, while CMG is 21.21% and SBUX is 6.92%.
  • MCD exhibits lower annualized volatility compared to CMG and SBUX. As of May 2, 2025, MCD's volatility is 26.25%, while CMG's is 46.76% and SBUX's is 59.93%. This indicates that MCD's stock price is generally more stable than its peers.
  • MCD's maximum drawdown is -17.21% on 2024-07-09, which is less severe than CMG's -38.07% on 2022-06-14 and SBUX's -43.68% on 2022-05-11. This suggests that MCD is less risky in terms of potential losses from peak to trough.

• Risk-Adjusted Performance:

  • MCD's Sharpe Ratio has generally been higher than SBUX but lower than CMG in recent periods, indicating that MCD offers better risk-adjusted returns than SBUX but not as good as CMG. As of July 12, 2024, MCD's Sharpe Ratio is -0.74, CMG's is 1.48, and SBUX's is -0.94.
  • MCD's Beta value has consistently remained below 1, suggesting that the stock is less sensitive to market movements compared to CMG and SBUX. As of December 30, 2024, MCD's beta is 0.36, CMG's is 0.91, and SBUX's is 0.74.

• Overall Assessment:

  • McDonald's Corp. (MCD) presents a more conservative investment profile compared to Chipotle Mexican Grill, Inc. (CMG) and Starbucks Corp. (SBUX). While MCD may not offer the same level of high returns as CMG, it exhibits lower volatility and smaller drawdowns, making it a potentially more stable investment.
  • A significant trend is the recent outperformance of CMG in terms of risk-adjusted returns, as indicated by its higher Sharpe Ratio. Additionally, SBUX has shown high volatility in annualized volatility and Sharpe ratio, indicating inconsistency in risk-adjusted returns.

Peers Fundamentals(as of 2025-03-31)

1. Market Position and Size:

   • McDonald's (MCD) stands out with a significantly larger market capitalization of $223,073.86 million compared to Chipotle (CMG) at $69,469.88 million and Starbucks (SBUX) at $96,241.72 million.
   • MCD's revenue of $25,707.0 million is substantial, though less than SBUX's $36,319.1 million. Its EBITDA of $13,482.0 million and Net Income of $8,162.0 million are the highest among its peers.
   • This indicates MCD holds a leading position in the restaurant industry, reflecting a well-established brand and extensive global operations.

2. Profitability and Efficiency:

   • MCD demonstrates superior profitability with a Gross Profit Margin of 55.73%, EBITDA Margin of 52.44%, and Net Profit Margin of 31.75%. These margins significantly exceed those of CMG and SBUX, as well as the industry average.
   • CMG's Gross Profit Margin is 23.42%, EBITDA Margin is 20.62%, and Net Profit Margin is 13.59%. SBUX has a Gross Profit Margin of 18.8%, EBITDA Margin of 16.48%, and Net Profit Margin of 8.62%. The industry average for Gross Profit Margin is 22.03%, EBITDA Margin is 12.38%, and Net Profit Margin is 1.81%.
   • MCD's high profitability suggests efficient operations and strong brand pricing power.

3. Financial Health and Stability:

   • Unfortunately, key financial ratios such as Current Ratio, Quick Ratio, Total Debt to Total Equity Ratio, and Debt/EBITDA are missing for MCD, making a complete assessment of its financial health challenging.
   • CMG has a Current Ratio of 1.52 and a Quick Ratio of 1.48, indicating strong liquidity. Its Total Debt to Total Equity Ratio is 132.72, lower than the industry average of 436.07, suggesting it is less leveraged.
   • SBUX has a Current Ratio of 0.64 and a Quick Ratio of 0.45, which are below the industry average, indicating potential liquidity concerns.

4. Valuation and Market Perception:

   • MCD has a Price to Earnings (P/E) ratio of 27.52, lower than CMG's 45.3 and SBUX's 30.78, as well as the industry average of 51.97. This suggests MCD may be undervalued relative to its earnings.
   • MCD's Price to Sales (P/S) ratio of 8.72 is higher than CMG's 6.11, SBUX's 2.66, and the industry average of 2.25, indicating a premium valuation based on sales.
   • The market appears to perceive MCD as a stable, mature company with reliable earnings.

5. Cash Flow and Capital Management:

   • MCD's Net Income is $8,162.0 million. CMG has a Net Operating Cash Flow of $2,092.92 million, Total Capital Expenditure of $605.71 million, and Free Cash Flow of $1,487.21 million. SBUX has a Net Operating Cash Flow of $5,569.7 million, Total Capital Expenditure of $2,804.6 million, and Free Cash Flow of $2,765.1 million.
   • SBUX generates more cash flow from operations than CMG, but also has higher capital expenditures.
   • Without MCD's cash flow figures, a direct comparison is not possible.

6. Growth and Future Prospects:

   • MCD's growth rates are generally lower than its peers. Its most recent year-over-year growth in Sales/Revenue (-0.22%), EBITDA (-1.94%), and Net Income (-5.04%) are all significantly below the peer averages.
   • MCD's 3-year and 5-year CAGR figures are also lower than the peer group averages, indicating it is losing ground to its competitors in terms of long-term growth.
   • This suggests MCD's future prospects may be limited compared to its higher-growth peers.

7. Potential for Investment:

   • MCD may be an attractive investment for risk-averse investors seeking stable returns due to its high profitability, market dominance, and reasonable valuation based on earnings.
   • However, its lower growth rates and premium valuation based on sales raise concerns about its long-term growth potential.
   • Investors should weigh MCD's stability against its limited growth prospects compared to peers like CMG and SBUX.

8. Key Risks and Considerations:

   • MCD's lower growth rates compared to peers pose a risk to its long-term market share and competitive position.
   • The absence of key financial data makes it difficult to fully assess MCD's financial health and stability.
   • Its high Price to Sales ratio suggests a premium valuation, which may not be sustainable if growth does not improve.

9. Overall Assessment:

   • MCD is a financially strong and highly profitable company with a dominant market position.
   • However, its growth is lagging behind its peers, and the absence of key financial data raises concerns about its long-term prospects.
   • Investors should carefully consider MCD's stability and profitability against its limited growth potential compared to its higher-growth peers.