McDonald’s (NYSE:MCD), Starbucks (NASDAQ:SBUX) and Dunkin Brands (NASDAQ:DNKN) were among restaurant stocks receiving attention from Wall Street’s sell-side Tuesday. But do their shares have what it takes for a nice boost beyond the morning cup of Joe? Let’s take a look at the latest finding off and on the price chart to allow for a stronger risk-adjusted determination for investors.
The broader market has taken to both Grinch-like and spirited Santa Claus rally behavior this December. And for seemingly good reasons. From NATO to impeachment proceedings and jobs data, the major indices have been moved by both volatile jeers and joyous cheers over the past week.
Apple (NASDAQ:AAPL) illustrates this frenetic, headline-driven price action well enough. And there’s more to come with the Fed on tap and next week’s Dec. 15 tariff deadline. But restaurant stocks MCD, SBUX and DNKN have all looked more like a cup of cold mud with investors. Now though, Wall Street has taken notice.
As part of a larger outlook for the sector, RBC’s Christopher Carril initiated coverage on MCD, SBUX and DNKN stock. Let’s take a look at those expectations and the price charts to decide whether these restaurant stocks can give investors’ portfolios a caffeinated boost or otherwise.
McDonald’s (MCD)
Source: Charts by TradingView
McDonald’s is the first of our restaurant stocks. Shares of MCD received an “outperform” rating and price target of $218. RBC cited substantial investments, reasserted earnings growth, accelerating cash flow, as well as $27 billion in dividends and buybacks as primary drivers.
Technically, the provided monthly chart shows MCD stock has corrected over the past three months. Following a solid rally which more than doubled McDonald’s share price over four years, today’s healthy pullback appears to be a counter-trend buying opportunity.
MCD Stock Strategy: If this restaurant stock can confirm the hammer test of the 38% retracement level tied to 2018’s corrective low, it’s a buy. Put MCD stock on the radar for purchase on a move through $197.
I’d recommend taking partial profits at RBC’s target price of $218. That’s effectively a challenge of the prior highs. To contain downside risk, a blended 6% stop which effectively limits exposure and only exits if the hammer is broken makes sense.
Starbucks (SBUX)
Source: Charts by TradingView
Starbucks is the next restaurant stock. Shares of SBUX were also initiated with an “outperform” rating. Like MCD stock, RBC’s price target of $97 offers similar upside expectations for the next 12 months.
Supporting this bullish outlook, RBC noted investor concerns from 2017 and 2018 have been fixed by Starbucks management. SBUX also sports a rare combination of double-digit earnings growth despite its $100 billion-plus market capitalization.
Technically, Wall Street’s worries during the prior two calendar years were manifested as part of a large, mostly lateral three-year basing pattern. But shares of this restaurant stock did go on to gain more than 50% over several months after breaking out of the base last November.
After consolidating those gains the past four months, SBUX stock has established a bottom. Earlier this month shares confirmed November’s monthly hammer which found support slightly above the 38% Fibonacci level. It’s bullish price action with a sprinkle of bearish worry as Starbucks has also broken its uptrend line of the past one-and-a-half years.
SBUX Stock Strategy: Given Starbucks’s superior growth prospects, I’d buy SBUX today as the hammer signal trumps our trendline-related concern. A 7% stop effectively minimizes dollar and pattern risk and further eases any worries. On the upside, I’m a bit more optimistic than RBC. I’d look for a move into $100 – $103 and slightly above Starbucks all-time high before reducing position risk.
Dunkin Brands (DNKN)
Source: Charts by TradingView
Dunkin Brands is the last of our restaurant stocks. Unlike the bullish “outperform” ratings assigned to MCD stock and SBUX, RBC has started DNKN stock with a “sector perform” and price target of $79. The firm cited a lack of positive traffic, intense competition, and price multiple concerns. RBC also sees Dunkin Brands need to continue building out its digital footprint and brick-and-mortar customer experience as backing the tempered outlook.
DNKN Stock Strategy: Technically, there is also some reason to be concerned with DNKN stock. Despite serving investors a nice combination of yet another similar-looking corrective base within its uptrend, stochastics bearishly diverged during the most recent peak in share price. The warning from the stochastics indicator could turn out to be a false negative. However, given DNKN’s monthly hammer attempt at bottoming is also aligned with RBC’s modest price target, the combination is enough to put a ‘hold-off’ recommendation on this restaurant stock.
Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits
