McDonald's, Another 'Victim' Of Vladimir Putin

| About: McDonald's Corporation (MCD)


McDonald's is under attack from 'health safety agencies' in Russia and China.

The National Labor Relations Board declares McDonald’s A ‘Joint Employer’.

MCD stock down 8%.

McDonald's Corp (NYSE:MCD), which opened its first Russian restaurant in Moscow in 1990, amid general rejoicing and unprecedented lines, is now in the Kremlin's crosshairs as ties between Moscow and Washington have fallen to their lowest point since Putin's invasion of Ukraine.

The officials at the Rospotrebnadzor have said that 'Caesar wrap sandwiches and a vegetable salad were contaminated with coliform bacteria' and that 'energy values of the chain's Royal Cheeseburgers, Filet-o-Fish, Cheeseburgers and Chicken Burgers were inaccurate'.

The watchdog agency Rospotrebnadzor has previously been accused of acting in the political interests of the Kremlin, banning Georgian wine as Tbilisi strengthened ties with Washington and spirits from Moldova after the former Soviet republic boosted its drive to partner with the European Union.

Polish fruit is also suddenly 'unhealthy' and Wendy's has decided to leave Russia altogether. Meanwhile, the McDonald's restaurant in the Crimea, deserted after the Russian annexation of that peninsula, will be replaced with a Kremlin-approved RusBurger.

Also in China, the authorities have recently become gravely concerned about the health of their citizens. McDonald's had been accused there of buying meat from a supplier in Shanghai, owned by OSI Group, a privately-held company based in Aurora, Illinois, that repackaged old beef and chicken and slapped new expiration dates on them. The scare has ensnared chains including McDonald's, KFC, Burger King and Starbucks, all of which got ingredients from a unit of OSI (pronounced OH-see) in the region, called Husi Food Co.

The above accusations may stem from the recent geopolitical union of Russia and China, who would like to see the US expelled from the Eurasian space if they only could. Further attacks upon Western corporations in those countries are to be expected in the coming period, and the most iconic US companies like McDonald's, Coca-Cola, or Nike, can expect further attacks. Less visible western companies are also under attack. GSK had to admit recently to giving bribes in China.

To add insult to injury, The National Labor Relations Board, a US agency, has said Tuesday that McDonald's could be named as a joint employer in several complaints by worker groups at restaurants owned by franchisees. The decision is pivotal because it could expose McDonald's Corp. to direct liability for a wide range of working conditions in those locations.

The enormous financial power of McDonald's

I have a very simple approach to valuing stocks. I seek to see if the company has an unassailable brand (which McDonald's has) or an established central economic position (such as, for example, Exxon) and then I take a look at the cash flow.

Fiscal Year Ending Dec 31






Total cash from operations (millions USD)






Capital expenditures (millions USD)






Free Cash Flow - FCF (millions USD)






Total cash dividends paid (millions USD)






FCF / cash dividends paid






Stock repurchases, net (millions USD)






Basic/primary weighted average shares (millions)







It is clear that MCD ekes out $4.2 billion for its shareholders every year from its 35,000+ locations worldwide. The number is $1.1 billion for the various YUM brands, $0.3 billion for Burger King and Chipotle and $0.1 billion for Wendy's.

I live in a town on the Mediterranean with only one McDonald's and I can assure you that this town can hold at least 2 more of them comfortably, so there is still room for growth, at least globally, I do not know if the US is 'saturated' with this brand. The other brands mentioned above are nowhere to be seen in my country of Croatia.

Sure, McDonald's revenues and earnings have been stagnant recently, revenue growth has been a meager 1.56% since 2011, and prophets of doom can list plausible reasons why McDonald's in no longer 'golden', but this company's history, and I believe in looking at history as the only way to predict the future, has been an amazing string of successes ever since Ray Kroc took it over in 1961, and even before. It has also been a mature company in the US from at least 1990, but has always found ways to grow and reinvigorate itself.

McDonald's is in my crosshairs

Had I the money now to invest in a solid company that will pay me dividends for all of my life, I would have no compunction in buying MCD at the current levels. I would have no problem at all, as this is an investment, once you buy it, there is no need to sell, ever.

If we are lucky, geopolitical tensions or bureaucratic decisions might drive the price even more, and we should, as Buffett says, do a 'dance of joy' and rejoice in that case. I'm starting to salivate for McDonald's right now, though not for the food.

MCD may be in the Kremlin's crosshairs, but it is also in mine.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.