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Module XIV: Industry Analysis Nathan Ferrier Brian Gitschier Jake Peng Curtis Vercruysse

Module XIV: Industry Analysis Nathan Ferrier Brian Gitschier Jake Peng Curtis Vercruysse. Agenda. Industry overview Horizontal comparison among constituent firms Valuation – McDonald’s. Industry Overview. Fast Food Hamburger Restaurants (FFHR). Restaurant industry ($1.75 trillion).

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Module XIV: Industry Analysis Nathan Ferrier Brian Gitschier Jake Peng Curtis Vercruysse

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  1. Module XIV:Industry AnalysisNathan FerrierBrian GitschierJake PengCurtis Vercruysse

  2. Agenda • Industry overview • Horizontal comparison among constituent firms • Valuation – McDonald’s

  3. Industry Overview • Fast Food Hamburger • Restaurants (FFHR) Restaurant industry ($1.75 trillion) Full service restaurants Quick service restaurants (254 billion, 14%) “Fast casual” • Non-FFHR

  4. Industry Overview (cont’d) • Observation: • The smaller the size, the higher the P/E • The market expects greater potential from little guys

  5. Key Features of QSR Industry • Resilient / Rigid demand • Fragmented • Highly competitive • Thin margin: compete on volume and cost leadership • Each constituent is unique

  6. Recent Trends in QSR Industry • Increased reliance on emerging markets • China’s GDP: annualized growth rate of 8.6% • U.S. GDP: annualized growth rate of just 2.3% • Menu innovation and re-imaging • Burger King’s Satisfries (30% less fats and 40% less calories) • Consolidation • Yum’sacquisition of Little Sheep

  7. Economic Shocks • Food safety • Poultry pandemic • Weather

  8. Fast Food Industry • All industrial participants sell food • Three primary differences exist

  9. Difference #1: Unique Products Burger King makes their burgers the natural way: they grill them. McDonald’s offers premium coffee products Wendy’s beef is fresh and never frozen Yum! Has a wide array of products ranging from stuffed-crust pizza to waffle tacos

  10. Difference #2: Franchise Emphasis

  11. Difference #3: International Presence

  12. Industry Growth • These three differences make industry growth and profitability difficult to forecast • We have determined the industry will see growth and profitability levels very similar to McDonald’s • Why?

  13. McDonald’s • McDonald’s is widely seen as the leader in the fast food restaurants industry • Over time, isomorphism will occur across the industry • Industrial participants will adopt processes and strategies that are similar to McDonald’s • As a result, industry growth and profitability will reflect that of McDonald’s

  14. Industry Assumptions

  15. Revenue Growth • McDonald’s: 3% • Industry Average: 5% • McDonald’s steady growth • Industry catching up

  16. McDonald’s Revenue Growth

  17. Enterprise Profit Margin • McDonald’s: 19.96% • Industry Average: 23% • Without BK: 15% • Burger King higher than industry due to business model • 99.7% franchised • Economies of scale

  18. McDonald’s Enterprise Profit Margin

  19. Enterprise Asset Turnover • McDonald’s: 1.01 • Industry Average: .97 • Burger King low due to lower revenue, high assets • Industry sales and assets growing at a consistently steady rate

  20. McDonald’s Enterprise Asset Turnover

  21. McDonald’s Valuation • Intrinsic Value Per Share: $110.83 • Market Value Per Share: $99.32 • Buy

  22. Questions?

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