McDonald’s Misses On The Top And Bottom Lines

Fast-food giant, McDonald’s Corporation (Ticker Symbol: MCD) reported earnings before the opening bell on Tuesday. The Chicago-based company reported earnings per share miss of $2.11 vs. Wall Street analysts’ expectations of $2.21 per share. The company reported revenue that came in at a slight miss also at $5.4 billion vs. Wall Street expectations of $5.5 billion.

McDonald’s reported global same-store sales that were 5.9% vs. Wall Street analysts’ expectations of 5.6%, led by strength from their international markets. Domestic same-store sales, which account for more than a third of the company’s revenue, grew by 4.8% for the quarter vs. Wall Street analysts’ expectations of 5.2%.  McDonald’s saw solid same-store growth in the U.S. thanks to its national and local promotions, specific menu item price increases, and technology upgrades like self-order kiosks and digital menu boards.

The above image is a long term weekly chart of McDonald’s stock starting at the beginning of 2011. The stock started off strong in 2011, initially trading higher. That stopped shortly after and the stock spent the next four years trading within a horizontal channel between the price levels of roughly $80.00 and $105.00. Horizontal channels are areas of indecisiveness between buyers and sellers. The stock is at a point in which supply and demand are relatively balanced and the stock’s price trades within a certain range. Usually, the same highs and lows are tested multiple times within the horizontal channel before it breaks out in either direction.

McDonald’s broke out of its channel to the upside led by a positive earnings report in the fourth quarter of 2015. The stock proceeded to rally, then paused momentarily trading in a bull flag pattern. Bull Flags are viewed as continuation patterns, that represent consolidation in the market, and are usually seen after large and fast moves. Bull flags are formed when a stock creates lower tops and lower bottoms, with the pattern slanting against the trend and its trend lines running parallel, which makes the pattern look like a pole with a flag. McDonald’s continued its rally over the course of the next three years and went on to trade to an all-time high of $221.93 on August 5th, 2019. The stock has since pulled back and is now trading at more realistic valuations. McDonald’s is currently trading just above its 200-day moving average just above the $200.00 price level.

(Chart above courtesy of ​​)

Based on a survey of 20 analysts offering 12-month price targets, the average price target for McDonald’s stock is $233.19. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $200.85.

Long-term investors are being rewarded for holding McDonald’s stock through its capital appreciation and its yearly payouts through dividends.

Investors in the fast-food space should look to competitor Wendy’s (Ticker Symbol: WEN) next earnings release on November 6th for fresh news within the sector.