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    From regressions analyzing the relationship between the S&P 500 PE and McDonald's PE from 1995-2004, three key findings were determined: 1) The expected PE for McDonald's in 2005 using the S&P 500 forecast was 21.37, close to the industry average of 21.05 but the correlation was very low, so this forecasted PE was not used. 2) Additional regressions examining the relationship between the two PEs in more detail found a correlation of 0.64 between the average McDonald's PE and the S&P 500 PE. 3) Regression lines were calculated predicting the average and high McDonald's PE based on the S&P 500 PE, with R-squared values

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    From regressions analyzing the relationship between the S&P 500 PE and McDonald's PE from 1995-2004, three key findings were determined: 1) The expected PE for McDonald's in 2005 using the S&P 500 forecast was 21.37, close to the industry average of 21.05 but the correlation was very low, so this forecasted PE was not used. 2) Additional regressions examining the relationship between the two PEs in more detail found a correlation of 0.64 between the average McDonald's PE and the S&P 500 PE. 3) Regression lines were calculated predicting the average and high McDonald's PE based on the S&P 500 PE, with R-squared values

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    4 views1 page

    Subway2 36

    Uploaded by

    sll994
    From regressions analyzing the relationship between the S&P 500 PE and McDonald's PE from 1995-2004, three key findings were determined: 1) The expected PE for McDonald's in 2005 using the S&P 500 forecast was 21.37, close to the industry average of 21.05 but the correlation was very low, so this forecasted PE was not used. 2) Additional regressions examining the relationship between the two PEs in more detail found a correlation of 0.64 between the average McDonald's PE and the S&P 500 PE. 3) Regression lines were calculated predicting the average and high McDonald's PE based on the S&P 500 PE, with R-squared values

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    © All Rights Reserved
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    of 1

    From this regression we calculated the expected PE for 2005 (using S&P 500 forecasted

    PE as calculated by Standards & Poor’s) at 21.37 which is close to the current industry

    average of 21.05. Nevertheless we believe that this P/E is too high given the nature of the

    company and we were surprised to find that the correlation between the two PEs was

    very low at .004. As a result we will not use this forecasted PE.

    2. We then ran three different regressions in order to get a broader picture of the expected

    PE and the relation of S&P 500 PE and that of MCD.

    MCD
    Year S&P MCD (High PE+Low PE)/ 2 MCD high low
    2004
    20.962 16 18 14
    2003
    28.978 16.5 23 10
    2002
    41.449 30 40 20
    2001
    36.892 24 28 20
    2000
    29.267 24 30 18
    1999
    32.899 31 36 26
    1998
    26.703 28 36 20
    1997
    22.321 21 24 18
    1996
    19.213 22 25 19
    1995 16.516 19.5 24 15
    Correlation 0.64 0.705 0.411

    Regression
    Line MCD AVG = 11.690 +.418SPX R-sq =40.66%
    20.22
    MCD HIGH = 11.454 +.616SPX R-sq= 49.66%
    24.03

    36

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