MCDONALDS CORP (MCD) stock intrinsic value fair value estimate & owner earnings analysis

McDonald's is the world's largest restaurant franchisor: about 45,356 restaurants at the end of 2025, 95% franchised in the U.S., 89% in its International Operated Markets (Australia, Canada, France, Germany, Italy, Poland, Spain, the U.K.) and 99% in developmental licensed and affiliate markets such as China and Japan. Most of its income is rent and royalties calculated as a percentage of franchisees' sales, often on land and buildings McDonald's owns. That makes the earnings stream unusually durable: it rises with menu prices and restaurant count, and franchisees fund most operating costs. How we measured earnings. We start from operating cash flow, strip out working-capital swings, subtract stock compensation and subtract capital spending needed to keep the business as it is. Because McDonald's carries about $40 billion of debt, we value the business before its lenders by adding back cash interest paid ($1.56 billion in 2025), then subtract the debt at the end. On that basis, cash generated per diluted share was $10.77 (2021), $9.65 (2022, hit by the Russia exit and a strong dollar), $11.88 (2023), $11.78 (2024) and $11.95 (2025). We use the 2021-2025 median, $11.78, as the starting level. Earlier years describe a different business: 2016-2018 were the large refranchising years and 2019-2020 reflect a smaller, pre-inflation price base and the COVID shutdowns. One judgement matters: our standard method treats capital spending as growth only to the extent revenue grows. McDonald's revenue grows slowly while it opens about 2,300 restaurants a year (many in licensed markets where it collects only royalties), so almost all of the $3.4 billion spent in 2025 was charged as upkeep, even though the annual report says it went mainly to new restaurants. That keeps the starting level conservative, and in exchange the cases credit the unit growth that spending pays for. Near-term growth check. Cash generated per share grew only 1.4% in 2025 because capital spending jumped by about $590 million to fund openings, while operating income rose 6%. The base case starts at 3% in year one because the first half of 2026 already shows revenue up 6.4%, net income up 5.4% and per-share cash generation (before working-capital swings) up roughly 5% versus the first half of 2025. Base case ($247.60 per share). About 1.5% a year from adding restaurants, at or below the roughly 2.3% annual pace achieved from 2016 to 2025 and already funded inside the starting level, plus about 1.5-2% from menu prices feeding percentage rents and royalties, below the 3.1% global comparable sales growth of 2025 and the long-run average. That gives 3% in year one, 3.5% in years two to five and 3% in years six to ten. For years 11 to 30 we keep only price-driven growth of 2%, supported by 20-year franchise agreements, owned real estate and a seven-decade record of nominal sales growth, then hold earnings flat with no further growth. The business is worth about $295 per share ($210 billion); after net debt of $47.71 per share, the equity is worth $247.60. Bear case ($157.47 per share). A shock like 2020 or 2022 (a market exit, a strong dollar, or a value-menu price war against weak traffic; 2025 U.S. comparable sales growth of 2.1% came from higher average check) cuts cash generation 5% next year, then it recovers over two years, grows just 1% a year through year ten, and stays flat in dollar terms forever after, so it shrinks in real terms. Business value is about $205 per share ($146 billion), less $47.71 of net debt, leaving $157.47. Even here interest (about $1.6 billion) is covered roughly five times. Bull case ($325.42 per share). The opening pace already under way toward the 50,000-restaurant target for the end of 2027 continues, and comparable sales track their long-run record, giving 5% a year for ten years and 3% for years 11 to 30, then flat. Business value is about $373 per share ($266 billion), less $47.71 of net debt, leaving $325.42. Debt. Borrowings were $39.9 billion at June 30, 2026 against $0.8 billion of cash. Most of it is fixed-rate at an average of about 3.85% (U.S. dollar notes at 4.4%, euro notes at 2.6%), well below the 6% rate we use to value every business, so we reduce the debt by about $5.1 billion to reflect that cheaper funding over its remaining life. Net debt is therefore about $34.0 billion, or $47.71 per share on 712.3 million diluted shares. Maturities are spread out ($3.2 billion in 2027, $5.2 billion in 2028, $3.6 billion in 2029, $3.0 billion in 2030 and $25.1 billion later, out to 2054), and none looks hard to refinance given cash generation of about $8.6 billion before interest. Restaurant leases are left out because their rent already runs through cash flow. What could make this wrong. Between 57% and 70% of each case's value comes after year ten, so the result depends on the brand and real estate keeping their earning power for decades. Sustained traffic declines in the U.S., rising labor costs for franchisees (for example California's $20 fast-food minimum wage, in effect since April 2024), a currency swing (more than half of revenue is outside the U.S.), or problems in China and other affiliate markets where McDonald's holds equity stakes would push results toward the bear case. Our previous estimate (base $127.52) discounted each case at a different, higher rate; we now use one 6% rate for all cases and express risk through the case assumptions instead, which is the main reason the estimates rose, while our near-term growth assumptions are lower than before.