All-day breakfast is delivering all-day profits to McDonald’s Corporation (MCD) shareholders.
The ubiquitous fast food chain delivered a fresh batch of earnings goodness to Wall Street during Monday’s earning release. The Street expected the golden arches to cook up $1.23 earnings per share and they weren’t disappointed. McDonald’s scored $1.31 earnings per share and was rewarded with a jump to a new all-time high at $121.90.
Turns out McDonald’s strategic decision to offer their spread of highly popular breakfast foods is paying handsome dividends. McDonald’s Chief Executive Officer Steve Easterbrook admitted as much during the conference call, saying, “All-day breakfast was clearly the primary driver of the quarter.”
MCD stock is truly standing out from the crowd. By sidestepping the recent market turmoil entirely, McDonald’s has been able to retain its uptrend, scoring high marks for relative strength all along the way.
Click to Enlarge
The accompanying price chart of MCD is a beaut. The uptick in earnings growth this past quarter is impressive and all, but the price action in the stock has betrayed McDonald’s bullish status for months now.
Shareholders can thank the breakout from late 2015. The $103 zone has kept a lid on MCD stock price for years. Once buyers finally felled the resistance beast, however, money fell from the sky. Check out the turnabout in the relative strength in the bottom panel. After suffering four years of relative weakness Mickey D’s has finally changed its stripes from laggard to leader.
While McDonald’s suffered a bout of profit taking into yesterday’s up-gap, the trend remains promising. So long as near-term support near $113 holds, consider MCD a buy.
The MCD Trade
Traders looking for additional upside in McDonald’s in the months ahead could buy call spreads here. Buy the April $120/$125 call spread for $2.05. The max loss is limited to the initial net debit of $2.05 and will be forfeited if MCD stock sits below $120 at expiration.
The max gain is limited to the distance between strikes minus the net debit, or $2.95, and will be captured if McDonald’s stock price can rise above $125 over the next three months.
By risking $2.05 to score $2.95, the call vertical spread offers an impressive 143% return if the MCD stock price surpasses $125.
At the time of this writing Tyler Craig has no positions on any of the aforementioned securities.
