Will Buffett Ever Buy McDonald’s Corporation (MCD)?

4. The company is able to present mouth – watering margins. With net profit margins and operating margins of 20% and 30%, respectively, the company easily qualifies as a member of the Berkshire Hathaway club. Only Coca Cola, with its branded sugar- carbonated water, is able to obtain similar margins to those of McDonald’s Corporation (NYSE:MCD). Except for Coke, there isn’t a single company in Berkshire’s portfolio with such margins.

Yet, Mr. Buffett hasn’t bought a single share of McDonald’s over the years.

Why Not?

It’s a mystery indeed. Yet, I’ll try and provide two quick suggestions as to why the Oracle of Omaha left McDonald’s untouched.

1. The company operates in a franchise business model. More than 90% of the company’s stores are externally managed by franchisees and not directly by the company. Buffett has never invested in a company with such a massive franchise model. Management, as capable as it may be, will never have full control over all of different stores and franchisees.

2. McDonald’s doesn’t really have a strong economic moat, which is a must for any of Buffett’s investments. Think about it for a second. Unlike American Express, nothing of McDonald’s is proprietary or patent-protected. Unlike Coca Cola, McDonald’s doesn’t have a secret hidden recipe in a safe. It makes very tasty, cheap burgers, but other rivals know how to make cheap and tasty burgers as well. Put simply, McDonald’s has a great brand, but not such a great economic moat.

The Foolish Conclusion

McDonald’s Corporation (NYSE:MCD) is a fantastic company by all means – it’s a branded icon, it’s a cash gushing machine, and it’s very friendly to its shareholders. But more likely than not, Mr. Buffett, loyal to his strict rules, will never ever invest in in. He might eat a burger every now and then, though.

The article Will Buffett Ever Buy McDonald’s? originally appeared on Fool.com and is written by Shmulik Karpf.

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