MCDONALDS CORP

MCDONALDS CORP (MCD) — Investment Memo

🐂 The Bull Case (Warren's voice)

• The Ultimate Toll Bridge: This isn't a burger business; it's a real estate empire. By owning the land and collecting rent from franchisees, MCD has decoupled its profits from the headaches of flipping patties.
• Institutional Ubiquity: 45,000+ locations create a "mental monopoly." The moat isn't the taste—it's the certainty. A traveler in a strange city chooses MCD because the risk of a bad meal is nearly zero. That's a powerful psychological moat.
• Inflation Hedge: They possess a rare "stealth" pricing power. They can raise the price of a Big Mac by $0.25 and the customer barely notices, but that penny-margin flows straight to the bottom line.
• Exceptional Economics: High-margin, recurring royalty streams with minimal CapEx requirements. It is a cash-flow machine that requires almost no new innovation to maintain its dominance.
• Attractive Entry: For Berkshire to move, we need a price that recognizes this is a utility, not a growth stock. We look for a price that treats the real estate as the primary asset and the burgers as the marketing.

🐻 The Bear Case (Charlie inverts)

“Show me where I'll die and I won't go there.”

• The "Lemon Squeeze" Collapse: Revenue CAGR of 0.6% is zombie growth. When NI grows (6.6%) while revenue stands still, you aren't growing; you are cannibalizing your partners. If franchisees feel the squeeze too harshly, the system breaks. A revolt of the operators is the primary structural risk.
• The Cultural Pivot: We are betting on the permanence of the "Fast Food" habit. If a generational shift toward health or "slow food" becomes a structural mandate rather than a trend, the utility of that real estate plummets. Land is only valuable if the business on top of it works.
• The Debt Trap: Climbing from $26.0B to $40.0B in debt while revenue is flat is financial engineering, not business building. They are using leverage to manufacture earnings per share. This is a "fair weather" strategy that fails when the cost of capital stays high.
• Most Likely Failure: The Franchisee Friction. Over the next 5–10 years, the tension between corporate's desire for margins and the operator's ability to pay rent will reach a breaking point.

💰 Valuation & Margin of Safety

Based on the DCF provided: $116.2B total enterprise value.

• Intrinsic value estimate: $163.58 per share
• 25% margin of safety entry: $122.69 (conservative)
• 50% margin of safety entry: $81.79 (Buffett's ideal)

Current Status: Grossly expensive. If the market price is anywhere near the current trading range (typically $250+), we are paying a massive premium for a company with dead revenue growth. We are essentially paying for growth that the numbers say isn't happening.

Verdict: PASS

The business is a wonderful machine, but the price is a fantasy. With revenue CAGR at 0.6% and rising debt, the margin of safety is non-existent. We do not buy "toll booths" when the toll is priced at a 100% premium to its intrinsic value.