Can McDonald’s Stock Rebound?

With shares of McDonald’s (NYSE:MCD) trading around $98, is MCD an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

McDonald’s franchises and operates McDonald’s restaurants in the United States, Europe, Asia Pacific, the Middle East, Africa, Canada, and Latin America — just about every part of the world. Its restaurants offer various food items, soft drinks, coffee, and other beverages, as well as breakfast menus. The products provided by McDonald’s fulfill cravings at competitive prices in convenient locations worldwide. The McDonald’s craze shows no signs of slowing, so the company has continued its expansion to just about every nation on the globe. As consumers continue to enjoy McDonald’s products, look for it to see rising profits.

McDonald’s and Yum Brands (NYSE:YUM) halted buying meat products from a Shanghai supplier while authorities investigate allegations that the company sold chicken and beef past their expiration date. McDonald’s asked all its outlets to stop using products from Shanghai Husi Food Co., according to statements on the company’s official Chinese microblog yesterday. Yum’s KFC and Pizza Hut restaurants did the same, the company said in a separate statement. Both restaurant chains said the move would result in shortages of some items and apologized to consumers for the inconvenience. Starbucks (NASDAQ:SBUX), which also was affected, removed one product from its menu. Shanghai authorities suspended operations at Shanghai Husi on the same day the local Dragon TV channel reported that Husi workers were repackaging and selling chicken and beef that had exceeded its sell-by date.

T = Technicals on the Stock Chart Are Weak

McDonald’s stock has struggled to make significant progress. The stock is currently pulling back and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, McDonald’s is trading between its rising key averages, which signals neutral price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of McDonald’s options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

McDonald’s options

14.77%

30%

28%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Average

Average

September Options

Average

Average

As of Monday, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on McDonald’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for McDonald’s look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-3.97%

2.03%

6.29%

4.55%

Revenue Growth (Y-O-Y)

1.44%

1.45%

2.39%

2.43%

Earnings Reaction

-0.35%

0.46%

-0.64%

-2.68%

McDonald’s has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about McDonald’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has McDonald’s stock done relative to its peers – Yum Brands (NYSE:YUM), Burger King (NYSE:BKW), and Wendy’s (NASDAQ:WEN) – and sector?

McDonald’s

Yum Brands

Burger King

Wendy’s

Sector

Year-to-Date Return

2.02%

2.39%

16.14%

-5.04%

4.87%

McDonald’s has been an average performer, year-to-date.

Conclusion

McDonald’s is a well-recognized company that fulfills cravings and demand for quick food choices that many consumers across the globe enjoy. The company and Yum Brands halted buying meat products from a Shanghai supplier while authorities investigate allegations that the company sold chicken and beef past their expiration date. The stock has struggled to make significant progress and is currently pulling back. Over the last four quarters, earnings and revenues have been increasing. However, investors have had mixed feelings about recent earnings announcements. Relative to its peers and sector, McDonald’s has been an average year-to-date performer. WAIT AND SEE what McDonald’s does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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