McDonald’s Stock is Officially Back – Eat Up MCD Now!

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McDonald’s (MCD) stock has been on a tear since August. Is it enough to believe that beaten-down MCD stock is back after a rough couple years? Or is the run for McDonald’s stock just a market-fueled aberration?

mcdonaldsTaglineLogoSince its bottom on August 25, McDonald’s stock is up about 25%, more than doubling the run-up in the S&P 500 over that same span. Prior to that big move, however, MCD had been stuck in a four-year rut, scarcely budging since the end of2011 despite some fits and starts. At $114, the stock is suddenly at an all-time peak by a full $11.

But there’s a difference between MCD stock being oversold and enjoying a short-term rebound amid a broad market recovery vs. a sustained comeback. After all, the company’s revenue has still declined for five straight quarters, and earnings per share are dangerously close to logging a second consecutive year of negative growth.

Increased global competition from the likes of Chipotle (CMG), Wendy’s (WEN), and Yum! Brands (YUM) continue to chip away at McDonald’s once unimpeachable position atop the fast-food market, too.

So what’s the score with MCD stock right now?

Some positive signs for McDonald’s Stock

On the plus side for MCD stock investors, despite these recent headwinds profits did tick upwards 28% last quarter. And looking forward, McDonald’s stock analysts are expecting a 9.2% improvement in EPS next year.

And yes, while overall sales fell again last quarter, same-store sales jumped 4% globally and 0.9% in the U.S., a huge improvement from -0.7% globally and -2% domestically in the second quarter, and the first same-store sales increase in more than two years. Plus, the company just launched all-day breakfast in the U.S., something it hopes will provide a nice jolt to future sales.

So, MCD is trending in the right direction. MCD stock is a tad pricey, trading at 21 times 2016 earnings estimates, though that’s not a deal-breaker given the expected earnings growth. And the stock has traded above its 50-day moving average since late September, and hasn’t had a decline of more than 4% since it started rallying in late August.

Between the sharp turnaround in EPS and same-store sales, encouraging 2016 estimates, and strong technicals, I think McDonald’s stock is a buy—even at all-time highs. Until August, MCD had spent the last four years basically going nowhere, trading in a tight range between $84 and $103. Last month it finally broke through that four-year ceiling in a big way, gapping up to $112 and continuing to inch forward ever since.

Wall Street returning to MCD stock

I believe that technical breakthrough is a sign that institutional investors are starting to warm back up to MCD stock. The 68.7% institutional ownership percentage is up from 64.7% at the beginning of the year.

And don’t forget that MCD remains a dividend stalwart, having just upped its quarterly payout for a 39th straight year. The 3.1% yield is a nice buffer against future declines, and is much better than the 2% yield you’re going to find in your average large-cap stock.

For decades, McDonald’s stock has been a must-own for any long-term income investor. That hasn’t changed, even after a few rocky years.

As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2015/11/mcdonalds-stock-mcd-stock-back/.

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