McDonald’s Corporation (MCD): A Bull Case Theory - InvestingChannel

McDonald’s Corporation (MCD): A Bull Case Theory

We came across a bullish thesis on McDonald’s Corporation (MCD) on Pacific Northwest Edge’s Substack by David. In this article, we will summarize the bulls’ thesis on MCD. McDonald’s Corporation’s share was trading at $298.57 as of Oct 23rd. MCD’s trailing and forward P/E were 26.14 and 23.47 respectively according to Yahoo Finance.

A close-up of customers ordering from a McDonald’s restaurant in Latin America.

McDonald’s has established itself as a dominant player in the market, consistently outperforming the S&P 500, even in the face of tech bubbles that inflated stock market returns. The cornerstone of McDonald’s strong performance is reflected in its remarkable free cash flow, calculated as cash generated from operations minus capital expenditures. This figure emphasizes the company’s capacity to return capital to shareholders after making essential reinvestments. Historically, approximately 72% of McDonald’s cash from operations has converted into free cash flow, an exceptionally high figure. With significant free cash flow, McDonald’s has aggressively repurchased shares—26.29% of its common stock over the last ten years and 54.72% since the mid-1980s. This strategy has effectively bolstered its stock price by decreasing the supply of shares, significantly enhancing total returns for investors.

In addition to share repurchases, McDonald’s maintains a steady dividend payout, which, although yielding a modest 2.25% currently, plays a crucial role in its long-term total return. When reinvested, these dividends compound to amplify the overall value of the investment.

What sets McDonald’s apart is its ability to generate impressive shareholder returns despite challenges such as stagnant revenue growth. Its consistent free cash flow, share buybacks, and dividends present a compelling case for McDonald’s as a robust long-term investment. The bullish thesis centers on McDonald’s maturity, financial soundness, and disciplined capital allocation, believing that companies with these attributes can continue to deliver significant shareholder value, even in a market that heavily favors high-growth tech stocks.

McDonald’s Corporation is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 67 hedge fund portfolios held MCD at the end of the second quarter which was 63 in the previous quarter. While we acknowledge the risk and potential of MCD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America.

Disclosure: None. This article was originally published at Insider Monkey.

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