Analysts Could Be Lovin’ McDonald’s Corporation (MCD) Stock Again Soon

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Investors and analysts are waiting to be disappointed by McDonald’s Corporation (NYSE:MCD) earnings when the company reports its quarterly earnings on Friday. This means that a positive earnings surprise could send MCD stock rocketing upward. Even failing that, getting in now would deliver patient investors a yield of 3.36%, and the company has had no trouble out-earning its dividend even in down years.

Analysts Could Be Lovin' McDonald’s Corporation (MCD) Stock Again Soon

Right now, analysts are expecting earnings of $1.49 per share on revenue of $6.28 billion, although there is a hoped-for “whisper” number of $1.52 per share on earnings.

That would be a 20% gain in earnings on revenue unchanged from the last quarter, and down $300 million from the same time a year ago. It would more than easily clear the company’s 89 cent per share dividend.

Despite this, most of the stories about MCD and McDonald’s stock lately have been negative, indicating that if it even meets expectations, it could get a boost. Since reporting a poor quarter in July, MCD stock has been dipping down and is currently trading at its low for the year.

McDonald’s Earnings Preview

Many things seem to be wrong at McDonald’s.

Two top executives announced this week they’re leaving and MCD, along with franchisees, has been hit with sexual harassment lawsuits.

McDonald’s is expecting to record a $130 million pretax charge, 12 cents per share, to cover the cost of selling restaurants to franchisees. MCD hopes to re-franchise 4,000 units over the next two years. Franchisees themselves are reporting that their sales are flat. Even the Ronald McDonald’s mascot has been pulled due to the “scary clown” fad.

This has analysts sounding the alarm. According to some analysts, total revenue for MCD will fall due to the strong dollar. Analyst Rich Ross noticed the dreaded “head and shoulders pattern” in the McDonald’s stock chart, meaning its latest move up failed to take out previous highs.

Some are even saying MCD stock is in secular decline.

Easterbrook Must Execute His Plan

CEO Steve Easterbrook took over the company with McDonald’s stock stuck below $100 per share and quickly gained credibility by bringing in all-day breakfast, a move some franchisees hated, but customers liked and analysts loved, because breakfast can be very profitable. It delivered a 6% gain in year-over-year sales during the first quarter.

But investors, and customers, want to know what he has done for them lately, and the MCD’s changes since then have been incremental. Much of Easterbrook’s plan lies below the surface: re-franchising restaurants, bringing in healthier offerings and increasing the range of product offerings.

The splash of Easterbrook has faded, and now he must deal with the secular issues he inherited from predecessor Don Thompson. These include its reputation for factory food, for cheap and cheaply made food and for unhealthy food. These are problems Easterbrook successfully dealt with in England, but now he must execute his strategy on a global scale.

Why Bulls May Run From MCD Stock

As a franchiser, McDonald’s will continue to show lower sales but should show higher profits. Its revenue will come entirely from selling product to franchises and from franchise fees. It won’t be bringing the retail price of its food onto its balance sheet at all.

For this reason, some analysts remain bullish on MCD stock. Should it be able to hold its level near $112 per share through earnings, it could be poised for a breakout.

Easterbrook has been in this situation before, and succeeded. It’s the position of a coach who has a good first season but whose team hits a losing streak in its second. McDonald’s stock performance over the last six months is no worse than that of Starbucks Corporation (NASDAQ:SBUX), which no one is abandoning.

I wouldn’t abandon Easterbrook now.

Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time.  Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in SBUX.

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Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2016/10/analysts-lovin-mcdonalds-corporation-mcd-stock/.

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