McDonald's Share Price May Be Undervalued According to Valuation Checks

McDonald's (MCD) stock price has retreated over the past year, but valuation checks suggest it may be undervalued. The company's intrinsic value estimate is close to its current share price around $259.

The Discounted Cash Flow (DCF) model values McDonald's by projecting cash flows and discounting them back to today. Using the latest twelve month free cash flow of about $8.2 billion, the DCF model points to an estimated intrinsic value of around $264 per share, just 1.8% above the current price.

McDonald's trades on a P/E ratio of about 20.9x earnings, which is below its industry average and peer group average. The fair P/E estimate of 26.1x suggests the stock trades at a discount to what investors might typically pay for these earnings.