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Technology Stocks : Warren Buffett
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To: Lars who wrote (48)3/26/1997 1:14:00 PM
From: Andrew   of 82
 
Lars,

I would be interested in tracking down that Fortune(?) article...
What I was basing my analysis on was simply discounted future
flows of owner earnings, under the assumption that MCD's superior
margins and ROE would allow above average growth. It said to me that
for the current price to be cheap, you'd need to be pretty sure that
MCD was going to grow owner earnings (i.e. free cash flow) in the
ballpark of 20% to 25% year for a long time (say 10 years). I did
not feel that that was a conservative assumption.

I guess what you're saying is that that assumption may be justified
by their international growth strategy combined with improved margins.

(I think that's what you meant by talking about KO raising profit 0.2
cents to 1 cents long term - profit per serving propagated down to the
net margin...)

Is MCD's current management as well-regarded as KO's? That is, are we
assuming that Buffett feels they have similar qualities to those
teams he has had such success with in the past (AXP, G, KO, etc, etc)?

I definately see why Buffett would want to own this company long-term,
I just don't understand why he was willing to pay such a seemingly
high price for it. I guess great companies rarely come cheap...

I'm just not seeing a significant margin of safety!

Andrew
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