The Jensen Investment Team Adds McDonald’s to the Quality Growth Strategy
March 2024
McDonald’s Corp (MCD) franchises fast-food restaurants in over 100 countries. Founded in 1940, the company today has more than 40,000 restaurants worldwide, with 95% operating under a franchised model and 5% company-operated. McDonald’s generates revenues primarily from royalty payments, which are calculated as a percentage of franchisee sales. Approximately half of McDonald’s restaurants pay both rent and royalties, and the remainder only pay royalties.
We believe McDonald’s benefits from a robust real estate portfolio, well-known brand, leading market position, and strong diversification across customers, suppliers and geographies. Additionally, McDonald’s enjoys high profit margins generated by royalty income and produces strong and relatively stable cash flow which it returns to shareholders via dividends and stock buybacks. While our expectations for revenue growth are tempered by the company’s size and industry, we believe that McDonald’s can continue to grow its restaurant footprint in the low single digits while steadily increasing pricing and customer traffic, leading to a solid mid-single-digit revenue growth rate over time. We are pleased to have added a business with strong competitive advantages and a dominant market position to the Quality Growth Strategy.
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Strategy holdings are subject to change and should not be considered recommendations to buy or sell any security.
The discussion of the specific security identified in this article is solely intended to illustrate the application of our investment approach. Our views expressed herein are subject to change and should not be construed as investment advice and are not designed or intended as a basis or determination for making any investment decision for any security. This information is current as of the date of this material and is subject to change at any time, based on the market and other conditions. Past performance is no guarantee of future results.
Jensen Investment Management, Inc., is an investment adviser registered under the Investment Advisers Act of 1940. Registration with the SEC does not imply any level of skill or training.
© 2024 Jensen Investment Management.
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