Is McDonald's Corporation (NYSE:MCD) a Buy, Hold, or Sell at $297? A DCF and Intrinsic Value Deep Dive

McDonald's Corporation (MCD) has long been a cornerstone of the global restaurant industry, but as the stock trades near $297, investors must ask: Is this iconic brand fairly valued, overvalued, or undervalued? To answer this, we turn to a discounted cash flow (DCF) model and intrinsic value analysis, comparing it to analyst price targets and key financial metrics. This approach offers a framework to assess MCD's long-term potential in a market that values both growth and stability.

DCF Valuation: A Conservative Estimate of Intrinsic Value

A DCF model calculates a company's intrinsic value by projecting its future free cash flows (FCF) and discounting them to present value. For McDonald's, the analysis hinges on several critical assumptions:

1. FCF Growth Rate: The model assumes a 3% annual FCF growth over the next decade, reflecting a conservative outlook despite McDonald's 2% revenue growth and $30 billion in loyalty program sales. This accounts for market saturation and competitive pressures.
2. Terminal Growth Rate: A 2% perpetuity growth rate is applied post-2034, aligning with long-term GDP growth and ensuring the model doesn't overestimate future cash flows.
3. Discount Rate: An 8% discount rate is used, reflecting the time value of money and the risk of McDonald's cash flows. This rate is slightly higher than the company's beta-driven volatility (5.6%) to account for macroeconomic uncertainties.

Using these inputs, the model projects McDonald's FCF from 2025 to 2034, with each year's FCF increasing by 3%. For example:
- 2025: $6.87 billion
- 2034: $8.80 billion

The present value of these cash flows totals $63.3 billion, while the terminal value (discounted to 2025) adds $81.7 billion, yielding a total intrinsic value of $145 billion. Divided by 718.3 million shares outstanding, this results in an intrinsic value per share of $202.

Comparing DCF to Analyst Price Targets

While the DCF model suggests an intrinsic value of $202, the market and analysts tell a different story. As of Q2 2025, 29 Wall Street analysts have set an average 12-month price target of $336.09, representing an 11.89% upside from the current $297 price. The range is wide, from a high of $552 (Oppenheimer) to a low of $250 (Melius Research).

The disparity between the DCF intrinsic value ($202) and the analyst average ($336.09) highlights a key tension: The DCF assumes conservative growth, while analysts project optimism around McDonald's strategic initiatives. For instance, Citi and Truist have raised their targets to $365 and $356, respectively, citing digital innovation, global expansion, and menu diversification.

Sensitivity Analysis: How Assumptions Matter

The DCF model's conclusion is highly sensitive to its inputs. If the discount rate is lowered to 7%—a more defensive assumption given McDonald's strong brand and global reach—the intrinsic value jumps to $255 per share. Similarly, a higher FCF growth rate (e.g., 4%) would further increase the valuation.

Conversely, a rise in the discount rate to 9% would reduce the intrinsic value to $185, widening the gap with the current price. This underscores the importance of assumptions in DCF modeling and the need for investors to stress-test their scenarios.

Risks and Strategic Catalysts

McDonald's faces headwinds, including declining global comparable sales (-0.1% in 2024) and intense U.S. competition from Wendy's and Chick-fil-A. However, the company's strategic initiatives—such as its 175-million-member loyalty program, $1 McCafé drinks, and plant-based menu expansion—could drive future growth. Additionally, digital ordering and automation are expected to boost efficiency and margins.

The dividend yield of 0.58% (based on a $1.77 annual payout) is modest but reflects McDonald's focus on capital returns. With 43 consecutive years of dividend growth, the company remains a staple for income-focused investors.

Investment Recommendation: A Cautious "Hold"

At $297, McDonald's appears overvalued relative to the DCF intrinsic value of $202. However, the gap narrows under more favorable assumptions (e.g., a 7% discount rate, yielding $255). This suggests the stock is neither a screaming buy nor a sell—it's a hold with potential for moderate returns.

For long-term investors, dips below $280 could present entry opportunities, as the valuation becomes more attractive relative to the DCF model. Aggressive investors might consider the stock if strategic initiatives (e.g., global expansion, digital transformation) accelerate cash flow growth beyond 3%.

Conclusion

McDonald's is a resilient business with a strong competitive moat, but its current valuation reflects high expectations. While the DCF model suggests overvaluation, the analyst consensus and strategic upside justify a cautious "hold." Investors should monitor key metrics like FCF growth, comparable sales trends, and executive guidance for signs of momentum. In a market that values stability and innovation, McDonald's remains a compelling, albeit nuanced, long-term bet.