Corporate Finance Valuation Project
Yes, I would invest in McDonald’s stock, specifically for it’s consistently “high yielding” dividend. According to Morningstar, MCD’s dividends started to show a significant leap in earnings per share in 2008, which I am attributing to their significant increase in net income from 2007’s $2395 million to 2008’s $4313 million. I would want this stock in my portfolio specifically for its growth. I do realize that the stock price continues to fluctuate several times a day. Despite its dip in price in December, McDonald’s has rebounded from its drop to $83.31 on November 16, 2012 to current date value of $102.28 as of 3 PM. The stock price still fluctuates daily, but the fluctuations mild volatility ranging from $96.13 on Feb 25 to its peak of $103.13 this past April 12, which beat the prior price targets of S&P, Morningstar and JPMorgan. I understand why Morningstar gives MCD three stars as the price per share is at a premium right now. I agree more with S&P that the stock is worth a buy hold as increased as predicted. However, I think of the higher than competition price per share on MCD as cost of buying into the steadiness of net income and free capital. With a β of 0.39, MCD has the lowest beta compared to its competition in restaurant peer group, reflecting the low risk demonstrated by the rebounding of its financials, profitability and financial health as listed in Morningstar’s report.
Mostly, I have faith in MCD’s continuity and consistency. While each of the three reports is not the same, they all relay the similar facts that MCD has positive working capital along with a wide moat of reserves to keep a fair amount of growth. I calculated 20% IRR with S&P’s financials and a conservative 18% IRR with Morningstar’s financials. Similarly, I calculated a 62.5% sustainable growth rate with S&P’s same data and 55.5% with Morningstar’s. Even it the growth plan was 2-3% in net income overall and operations, I am confident...
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