MCD has strong quality metrics (high ROIC, brand) but faces challenges from high debt and low growth; current valuation implies moderate returns (~8.5%), limiting upside attractiveness.

McDonald's stock has fallen by more than 27 % from its highest levels. Let's start with the most famous, McDonald's, and take a look at this. It is near its lowest level in 52 weeks, down 27% from its peak, although business is still growing.

Its sales last year reached $27.7 billion , an increase of more than 6%, and it achieved profits of nearly $9 billion. Well, the real reason is the market's fear of the overworked American consumer.

Sales at restaurants that have been open for at least a year saw only minimal growth here in the United States during the last quarter.

The management even admitted that it had failed in some promotional offers and lost low-income customers who feel that McDonald's is no longer as cheap a deal as it used to be.

It now relies heavily on value meals and app offers to win back those budget-conscious customers.

This is a legitimate concern, because reigning supreme in terms of value has always been McDonald's superpower. In the first instance of climbing, McDonald's remains the default choice for convenience.

Guys, people can say whatever they want about McDonald's , but standing in that queue, completing the order, and getting the food is great and excellent.

The brand adapts better than its competitors. McDonald's has repeatedly adapted to changing consumer behavior through phone ordering , delivery, drive-thru convenience, and all of these things.

They are doing a great job of saying, "Let's keep up with this." This is huge for an economy that is constantly changing. Third, the franchise system creates a strong global network.

It's the largest global franchise network, and they do a great job running it. They make everything centered around the franchisees.

Guys, the failure rate of a franchise site falls within a very low percentage range . This is an incredible business model, and that's why they take franchisees so seriously.

You need to go to McDonald's University to get the necessary training for that. Negative viewpoints. McDonald's is losing its cultural significance. The main negative story is not that people will suddenly stop eating fast food, but that it is gradually becoming less important to customers.

So, although they are still the pioneers and the first choice in terms of comfort, there are plenty of great options available.

Chick-fil-A , Taco Bell, Burger King are almost on their way out, and although I love Burger King, there are plenty of other options out there.

The value proposition becomes less convincing. Historically, they have benefited from being an easy and affordable option. The downside is that some customers have started to wonder, is this really worth the price?

Guys, meal sizes have gotten smaller, and prices have recently gone up due to a large and rapid increase in costs.

This affects people, and that's a problem. I don't think it will last in the long term . Now, the only downside to their franchise model is that as great as it is, as it continues to grow , it becomes more difficult to manage.

As you know, ultimately, these are n't huge negative views for me, but it's something to definitely keep in mind as you move forward. So , let's take a look at McDonald's here.

The company's price is $169 billion . This is the market value. This is the price you pay for the company when you buy the stock.

Next, the value of the institution is $229 billion . This means $60 billion in debt.

The difference between the value of the firm and its market value is their level of debt. This is a lot considering they generated $7.2 billion in free cash flow last year, $5 billion of which went to dividends.

So , this makes the level of debt extremely difficult to manage, if you ask me. A good and growing profit margin, 28.7% annually over the past ten years, 31% over the last five years, and nearly 32% last year, with excellent returns on capital, is a great measure of quality here.

But of course, their revenue growth will not be huge. Actually, it's 1% per year over the past ten years, probably because they spun off Chipotle or something, I do n't know.

Let's take a look at the eight pillars. So, debt is a problem, and the price-to-free-cash-flow ratio is also a problem.

They are buying back shares, cash flow is up, revenue is up, net income is up, the five-year price-to-earnings ratio is good, and the return on capital is very, very high . Most people will sit down and say that McDonald's is the leader in fast food, and therefore you should own its shares.

Or that McDonald's food has become bad now, and therefore you shouldn't own its shares. This is not the right way to look at it.

In a few minutes we will know the price we will pay for McDonald's, but in the meantime, let's see what analysts think about the future of this company.

Well, earnings are growing from about $13 per share to $16.50. It's not attractive. As you know, 6 to 8% annually, but it's still something.

It is a very mature company, and revenues are growing at 5%, 5.5%, 4%, 3.5%, and basically remain stable. So guys, McDonald's isn't going to grow by leaps and bounds . Its growth is likely to keep pace with the growth of the gross domestic product.

Why? Because it's so huge , and that's acceptable.

I set low, medium, and high estimates. So, first, I conduct a 10-year analysis. The first question is, what revenue growth would I assume for the next ten years? I put 3% on the low side, 4.5% on the medium side, and 6% annual revenue growth on the high side.

Next, what is the profit margin and free cash flow margin that we will obtain? Okay, for profit, I put 25, 29 and 35. I'm going to make this range a little more precise . I'll make it 28, 30, and 32.

For profit, and for free flow, I'll put 23. Hmm. Yes, I will put 23, 26 and 29%. Therefore, their free cash flow is slightly less than their profit margin.

Next, what is the price-to-earnings ratio and free cash flow rate that I will allocate to this business 10 years from now? Now, guys, as I said before, I don't care about the historical earnings multiple.

If the historical price-to-earnings ratio was four because it was 1982 and nobody in the world wanted the stock, does that mean you should apply a price-to-earnings ratio of four to this company? no.

Is McDonald's outperforming the average company in the S&P index? Well, it has a high return on capital, much higher than the S &P, and it has a great brand and wide reach. So, yes, I think so.

Therefore, I chose 20, 23, and 26 times earnings and free cash flow.

Finally, the intrinsic value return without a margin of safety is 9.5%. This is not the return I want. It's simply a return to saying, "What is the market value of this?"

Press the analyze button. The stock price is currently 237. I have a low price between 150 and 190, a high price from 300 to 330, and an average price from 220 to 250.

So, what this means, folks, is that if I pay today's price and my average assumptions are realized, I can expect a return of around 8.5%. This includes dividend distributions. If my lower assumptions are realized, 4 %, and if my higher assumptions are realized, 13%, and all of that includes dividends.

Now, you have just seen me run an analysis of companies like Aeon, McDonald's, and American Express through our tool to get a number, an actual price that I am willing to pay.