McDONALD’S CORPORATION (MCD): what the price assumes

In the published model solve dated 2026-Q2, anchored at $265.12, McDONALD’S CORPORATION (MCD) is priced for -0.6% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-26.

Generated: 2026-08-30 · Source: https://boothcheck.com/report/MCD

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 7% cost of capital with 4% terminal growth over a 5-year stage (computed at the 7% minimum rate; the CAPM rate 6.7% sits below it).

How unusual the bet is: within-range (limited comparison data)

Valuation X-Ray

Every valuation family lands below the price. The price therefore sits beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that call it expensive: Earnings, Growth

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.3%); the inversion above states its own rate.

Per-Model Detail (n=4)

Economic-Unit Decomposition (Sum Of The Parts)

One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Bullet Takeaways

• Fees from franchisees make up 62% of revenue and food sold directly to customers only 36%, which is why the trailing operating margin runs 46.2% while most restaurant companies work in single digits.
• Roughly 68% of its operating income is earned outside the United States, so currency moves and foreign consumer demand carry more weight here than a domestic read would suggest.
• The pressure point is the value proposition, and the 10-K says so directly: pricing and marketing plans may not be successful, or may not be as successful as the efforts of our competitors, which could negatively impact sales, guest counts and market share.

Bull Case

Restaurant companies are usually hard to value for the same reason they are hard to run. Earnings sit on top of two costs nobody controls, labour and food, and a third, rent, that locks in for a decade at a time. A small move in any of them swings the profit, which is why the sector trades on traffic and comparable sales rather than on anything resembling a durable margin.

McDonald's breaks that pattern by not really being in that business. Fees from franchisees account for 62% of revenue, restaurants the company runs itself only 36%, and the 10-K puts the split into perspective: Franchised margins represented approximately 90% of restaurant margin dollars. The overseas licensee segment is 99 % franchised as of December 31, 2025. What the company actually sells is the right to operate under the brand, in a location it usually controls, at a fee tied to sales rather than to profit. Commodity inflation is the franchisee's problem. Wage inflation is the franchisee's problem. The royalty arrives either way.

The margin shows it. The trailing operating margin is 46.2%, and management guided that it expects 2026 operating margin percent to be in the mid-to-high 40% range. Set that against the cohort and the gap is not subtle. YUM, the closest structural comparison and itself heavily franchised, runs a 31.5% operating margin on revenue growing 9.7%. QSR runs 24.7%. CMG, which owns its restaurants, runs 15.3%, and SBUX 7.6%. The ranking is a direct readout of how much of each company is a franchisor rather than an operator, and McDonald's sits at the far end of it.

Overhead is held to a level that only works at this scale. Management expects full year 2026 Selling, general and administrative expenses of about 2.2% of Systemwide sales. Two cents of corporate cost per dollar of food sold across the system is what a brand and a supply chain cost once they are already built, and it is the reason the incremental royalty dollar falls almost entirely to operating profit.

The recent trajectory is better than the reputation. In the first quarter of 2026, excluding restructuring charges, consolidated operating income increased 11% (5% in constant currencies) and Diluted earnings per share was $ 2.78 , an increase of 7% (2% in constant currencies), helped by strong sales performance across all segments. Currency did some of that work, which is worth being honest about. The constant-currency figures are still positive.

Here is what makes the setup interesting rather than merely comfortable. Today's price embeds company-wide operating profit growing about 0.7% a year over the next five years. Not seven percent. Not the eleven the company just reported. Under one percent. A business that has been compounding operating profit at a mid single-digit pace does not have to accelerate to meet that bar; it has to avoid falling to nearly flat. That is an unusually low hurdle to find attached to a franchise this defended.

Capital return closes the loop. The company states its priorities as investing in returns-generating projects, then prioritize our dividend, then repurchase shares with remaining free cash flow over time, and the share count has fallen about 1.2% a year since early 2022. Dividend first, buyback second, in that order and stated plainly, is a management team telling owners what to expect rather than leaving it to be inferred.

Bear Case

The most dangerous number in a mature business is the one at its best. A 46.2% operating margin, with management guiding the coming year to the mid-to-high forties, is not a level with much room above it. A multiple gets set while the margin is at its widest, and it gets revised on the way back down rather than at the top.

That matters more here than the growth question, because the growth question is already settled conservatively. Today's price asks for company-wide operating profit to grow only about 0.7% a year for five years. Read that as good news and the analysis stops too early. What the price is really doing is paying about 20x operating income for the margin to STAY where it is. The bet is not on growth. It is on the durability of the widest margin in the sector.

The cost pressure is already visible on the part of the business the company owns. The 10-K notes that Company-owned and operated margins reflected the impact of ongoing inflationary cost pressures in the U.S. and the International Operated markets, alongside negative Company-owned and operated sales performance in the U.S.. Those restaurants are a third of revenue, and they are the early-warning system for the other two thirds. A franchisee whose own margin is compressing eventually pushes back on remodel requirements, on technology fees, on rent. Royalty revenue is the last thing to break in a franchise system, which is exactly why it is the wrong place to look for the first sign of trouble.

Structurally, the company cannot move quickly. The 10-K states that As we generally secure long-term real estate interests for our restaurants, we have limited flexibility to quickly alter our real estate portfolio, in a landscape reshaped by changing business trends, consumer preferences, trade area demographics, consumer use of digital, delivery and related shifts. Long leases in a category where consumer traffic patterns are moving is a slow-motion exposure. It does not produce a bad quarter. It produces a decade of restaurants in locations that made sense when they were signed.

Then there is the demand side, which the filing does not dress up. The company warns that its pricing and marketing efforts may not be successful, or may not be as successful as the efforts of our competitors, which could negatively impact sales, guest counts and market share. In a category where the customer is choosing on price, and where roughly 68% of its operating income comes from outside the United States and so from consumers with their own local squeeze, a value proposition that slips is not recoverable in a quarter.

The balance sheet does not offer much cushion. Funded borrowings run about $45.0 billion on a funded-debt build-up, against roughly $1.17 billion of cash and equivalents on hand, and interest is covered around 7.8 times by trailing operating profit. Comfortable, and no more than that. Management has already told investors it expects interest expense for the full year 2026 to increase at current rates. A franchisor with a peak margin and a leveraged balance sheet is a fine thing while the margin holds; it is a different thing if the margin gives back three or four points.

The methods themselves are split on this. The peer-comparison approaches reach past today's quote, which is the bull's evidence. The price sits roughly 4.8 times where the earnings-power approaches land, because they capitalize current profit with no growth and no margin expansion at all. The honest reading is that the entire distance between those two answers is the market's confidence that the margin persists. That confidence may be justified. It is still the whole position.

Valuation

Two facts frame this price and they pull in opposite directions. The market is paying about 20x company-wide operating income, and what that multiple embeds is operating profit growing roughly 0.7% a year over a five-year stage, discounted at 7%. A sub-one-percent growth requirement attached to a twenty-times multiple sounds contradictory until the second half of the sentence is spelled out: the multiple is not paying for growth, it is paying for the 46.2% operating margin to stay put. Judged against what the company has recently delivered, the near-term pace is well within reach. The stretch is in how long it must persist, not in the rate.

The methods used to triangulate disagree along a clean line. The peer-comparison approaches reach past today's quote; the price sits about 4.8 times where the earnings-power approaches land. That is the widest kind of split available, and its cause is mechanical rather than mysterious. One earnings-power read capitalizes free cash flow of about $7.0 billion at the required return with no growth whatsoever, and another normalizes operating profit over five years with one-time charges added back before doing the same. Both describe a business that stops improving today. Against that, the cash-flow methods that do project forward land essentially at the quote: one carries a terminal enterprise multiple of 16.2x held flat from today, compressing to 14.2x in the bear scenario and expanding to 18.2x in the bull, over a five-year projection.

Cohort position is informative without being alarming. The multiple sits in the upper half of the peer range rather than at its edge. The reason is legible in the margin structure: YUM at a 31.5% operating margin on revenue growing 9.7% and QSR at 24.7% are the franchised comparisons, while SBUX at 7.6% and CMG at 15.3% carry the operating risk McDonald's has largely handed to its franchisees. Valuing the franchisor above the operator is a defensible preference, and the peer numbers are what make it defensible rather than a matter of taste.

The balance sheet deserves a name for its basis rather than a single number, because two are available and they measure different things. On a funded-debt build-up, borrowings run about $45.0 billion. Fold in the long-term property obligations that come with securing restaurant sites and the working figure is materially larger, which is the honest way to think about a company that signs decade-long commitments on the ground its restaurants stand on. Cash and equivalents stood at roughly $1.17 billion, so operating cash flow rather than the cash balance is what services all of it. Interest is covered around 7.8 times by trailing operating profit, and management has guided that interest expense rises in 2026 at current rates.

What the buyer is underwriting, then, is narrow and specific. Not that the company grows quickly, because the price does not ask for that. Not that the balance sheet is unassailable, because it is merely adequate. The single load-bearing assumption is that a business earning close to half of every revenue dollar as operating profit keeps doing so while the franchisees who generate approximately 90% of restaurant margin dollars absorb the cost inflation on its behalf.

Catalysts

The next scheduled information event is the second-quarter report on August 3, 2026. Two things in it will matter more than the headline. First, whether operating margin is tracking inside the mid-to-high 40% range management guided for the full year. Second, whether the company-operated restaurants in the United States have stopped posting the negative Company-owned and operated sales performance in the U.S. the 10-K described, since those restaurants are the clearest read on what the franchisees are experiencing.

Capital return continued on schedule. On July 23, 2026 the board declared a quarterly cash dividend of $1.86 a share, consistent with the stated priority to prioritize our dividend ahead of buybacks. Interest expense is the offsetting item to watch, since management has said it expects interest expense for the full year 2026 to increase based on current rates, which puts a small but real drag on the cash available after the dividend is paid.

On the operating side, the company introduced a growth program in June 2026 built around restaurant automation, hospitality standards and menu changes. Automation is the item with genuine financial content rather than presentation value, because it addresses the labour cost that sits inside franchisee profitability rather than inside the company's own income statement. If it works, it shows up first as franchisee willingness to keep investing in remodels and new units, and only later in reported royalties. That lag is the reason to watch unit development commentary on the call rather than waiting for the revenue line to say something.

Peer Cohorts (Per Segment, With Filing Citations)

International Operated Markets / International Developmental Licensed Markets & Corporate (reported)

• YUM (YUM! BRANDS, INC.)
• FY2025 10-K: …goods and services from third parties in local currencies when practical. Consequently, foreign currency denominated financial instruments consist primarily of intercompany receivables and payables. At times, we utilize forward contracts and cross-currency swaps to reduce our exposure related to these intercompany…
• FY2025 10-K: …and finance lease right-of-use assets, respectively, acquired as part of the KFC U.K. and Ireland restaurant acquisition (see Note 3). 85 Supplemental Balance Sheet Information 2025 2024 Consolidated Balance Sheet Assets Operating lease right-of-use assets $ 1,213 $ 881 Other assets Finance lease right-of-use assets…
• QSR (RESTAURANT BRANDS INTERNATIONAL INC.)
• FY2025 10-K: …uses Adjusted Operating Income (i) in the budgeting process and in periodic reviews of segment performance by comparing variances in actual segment income results to budget and (ii) during the annual budgeting process to make capital allocation decisions, including allocating resources to segments. Adjusted Operating…
• FY2025 10-K: …which is included within investing activities in the consolidated statements of cash flows. In connection with the cross-currency rate swaps hedging Canadian dollar and Euro net investments, we utilize the spot method to exclude the interest component (the "Excluded Component") from the accounting hedge without…
• SBUX (Starbucks Corporation)
• FY2025 10-K: …compared to $5.4 billion in fiscal 2024. Operating margi n contracted 830 basis points to 11.5%, primarily driven by deleverage (approximately 310 basis points) restructuring costs ass ociated with the closure of coffeehouses and simplification of our support organization (approximately 240 basis points) and…
• FY2025 10-K: …us-gaap:DesignatedAsHedgingInstrumentMember us-gaap:NetInvestmentHedgingMember 2024-09-30 2025-09-28 0000829224 us-gaap:CrossCurrencyInterestRateContractMember us-gaap:DesignatedAsHedgingInstrumentMember us-gaap:NetInvestmentHedgingMember 2023-10-02 2024-09-29 0000829224…
• CMG (CHIPOTLE MEXICAN GRILL, INC.)
• FY2025 10-K: …income tax asset 1,417,381 1,307,171 Deferred income tax liabilities $ 125,674 $ 46,208 Gross foreign net operating losses ("NOLs") were $ 205,074 and $ 165,085 as of December 31, 2025 and 2024, respectively. Our foreign NOLs can be carried forward indefinitely. Gross state NOLs available across all jurisdictions in…
• FY2025 10-K: …22 Item 6. Reserved 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 24 Item 7A. Quantitative and Qualitative Disclosure About Market Risk 32 Item 8. Financial Statements and Supplementary Data 34 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 )…
• YUMC (Yum China Holdings, Inc.)
• FY2025 10-K: +11 Core Operating Profit (b) 1,292 1,162 NM +11 OP Margin (c) (%) 10.9 10.3 +0.6 +0.7 Core OP Margin (b) (%) 11.0 10.3 NM +0.7 Net Income 929 911 +2 +2 Adjusted Net Income (b) 929 911 +2 +2 Diluted Earnings Per Common Share 2.51 2.33 +8 +8 Adjusted Diluted Earnings Per Common Share (b) 2.51 2.33 +8 +8 NM refers to…
• FY2025 10-K: …2024-01-01 2024-12-31 0001673358 yumc:CorporateAndUnallocatedMember yumc:TransactionsWithFranchiseesMember us-gaap:OperatingSegmentsMember 2024-01-01 2024-12-31 0001673358 yumc:TransactionsWithFranchiseesMember us-gaap:OperatingSegmentsMember yumc:KFCMember 2023-01-01 2023-12-31 0001673358…
• TXRH (Texas Roadhouse, Inc.)
• FY2025 10-K: …incremental to those in the United States. In addition to the risks that we face in the United States, our international operations involve risks that could adversely affect our business, including the need to adapt our concepts for specific cultural, language, and consumer preferences; new and different sources of…
• FY2025 10-K: …to noncontrolling interest holders - ​ - ​ - ​ - ​ - ​ ( 10,361 ) ​ ( 10,361 ) Acquisition of noncontrolling interest, net of deferred taxes ​ - ​ ​ - ​ ​ ( 3,297 ) ​ ​ - ​ ​ ( 3,297 ) ​ ​ ( 865 ) ​ ​ ( 4,162 ) Dividends declared ($ 2.44 per share) - ​ - ​ - ​ ( 162,864 ) ​ ( 162,864 ) ​ - ​ ( 162,864 ) Shares issued…
• DRI (DARDEN RESTAURANTS, INC.)
• FY2025 10-K: Refer to Note 1 for further details on the derivative instruments and hedging activities accounting policy. The notional and fair values of our derivative contracts are as follows: Fair Values (in millions, except per share data) Number of Shares Outstanding Weighted-Average Per Share Forward Rates Notional Values…
• FY2025 10-K: …and other international trade regulations, the USA Patriot Act, the Foreign Corrupt Practices Act, and applicable local law. Failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could harm our business, results of operations and financial condition.…
• EAT (BRINKER INTERNATIONAL, INC.)
• FY2025 10-K: …the revolving credit facility which is our only debt instrument with a variable interest rate. Commodity Price Risk We purchase food and other commodities for use in our operations based on market prices established with our suppliers. While our purchasing commitments partially mitigate the risk of such fluctuations,…
• FY2025 10-K: …represent the contractual obligations due under the lease agreements, including cancellable option periods where we are reasonably assured to exercise the options. (4) Purchase obligations are defined as an agreement to purchase goods or services that is enforceable and legally binding on us and that specifies all…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.