Episode notes
Daniel Mahncke and Shawn O’Malley cover their first restaurant stock. Although one could argue it isn’t really a restaurant business at all. McDonald’s (NYSE: MCD) is the landlord behind $139 billion of yearly sales across roughly 46,000 restaurants. About 95% of those restaurants are run by franchisees, who paid McDonald’s around $10.4 billion in rent and $6 billion in royalties last year. That means about 91% of McDonald’s restaurant-level profit comes from collecting rent and royalties, not from selling burgers.
Daniel and Shawn explain how Ray Kroc took over McDonald’s and came up with the real estate plans with his business partner Sonneborn. They also cover how Bill Ackman’s 2005 refranchising plan was rejected by management, then carried out a decade later by Steve Easterbrook, the CEO who was later fired and handed back $105 million. They look at why franchisees are currently pushing back, and what the roughly $8.5 billion of rent relief and remodel support announced at the September investor day means for shareholders. They also ask whether GLP-1 drugs can be a terminal risk for McDonald’s. In the end, they walk through the valuation model and decide whether the world’s most famous landlord is worth its price, and whether McDonald’s earns a spot in The Intrinsic Value Portfolio.
IN THIS EPISODE YOU’LL LEARN:
(00:00:00) Intro
(00:02:06) About McDonald’s journey to a global franchise
(00:11:01) Why and how McDonald’s turned into a real estate company
(00:20:37) How McDonald’s actually makes money
(00:23:56) How the franchising business works
(00:28:48) Why McDonald’s wants to sell more restaurants
(00:46:36) How GLP-1 drugs change the business
(01:19:16) Valuation discussion
(01:21:59) What MCD’s stock is worth
(01:24:56) Whether MCD will be added to The Intrinsic Value Portfolio
Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.
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