Tag Archives: NYSE:MCD

McDonald’s: Zacks’ Bear of the Day Play

McDonald’s Corporation (MCDAnalyst Report) is in the midst of trying to find its competitive footing after years of global domination. This Zacks Rank #5 (Strong Sell) is expected to see a decline in earnings in 2015 as it struggles against nimble competition.

McDonald’s is one of the world’s largest restaurant chains with over 36,000 locations globally.

It’s famous for several of its brands including the Big Mac, Quarter Pounder and, in the month of March, the Shamrock Shake.

February Sales Disappointed

On Mar 9, McDonald’s reported February’s monthly sales results which decreased 1.7%.

The United States, despite lower gasoline prices and a recovering economy, declined 4%. Asia/Pacific, Middle East and Africa fell 4.4%.

The company cited broad-based consumer perception issues in Japan for part of the downturn in Asia.

One of the few bright spots was Europe, which saw a gain of 0.7% despite the continent’s lackluster overall economic growth.

Another New CEO

Earlier this year, McDonald’s made a change at the top. As of Mar 1, 47-year old Steve Easterbrook became CEO. He was formerly global chief brand officer.

Many analysts believe that branding will be key to the changes that will come to the company. McDonald’s menu is now far more extensive than its original mission of burgers and milkshakes.

Additionally, with the emergence of specialty burger chains like ShakeShack, Habit Grill, Red Robin and Smashburger, McDonald’s now has to worry about more than just its former rivals of Burger King and Wendy’s for consumers dollars.

Estimates Slashed for 2015

The analysts aren’t optimistic that 2015 will be the year of the turnaround.

10 estimates have been cut for 2015 in just the last 30 days. Analysts now expect earnings to fall 7.2% compared to 2014.

They’re also not that optimistic about 2016. They see earnings growing just 8% and that is now off a lower bar.

Still Not Cheap

While shares sank in early 2015, they have since rebounded with Easterbrook taking over the helm.

Investors won’t get a deal on McDonald’s right now. It is trading with a forward P/E of 20, which is well over the average of the S&P 500 of 17.9.

But why concern yourself with when McDonald’s will turn it around?

There are other restaurant chains where earnings are rising.

Investors should take a look at Darden Restaurants, Inc. (DRIAnalyst Report). The owner of the Olive Garden spun off its Red Lobster chain and is now a Zacks Rank #1 (Strong Buy). It is expected to grow earnings by 46% in fiscal 2015 and another 12.3% in fiscal 2016.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

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McDonald’s: Zacks’ Bear of the Day Play

About 25 pounds ago I was a burger-eating son of a gun. I love them. I even have one named after me at a local place here in Chicago, “The Legendary Infamous FBD.” It’s got bleu cheese, grilled onions, bacon and a fried egg on a pretzel bun. Delicious. But that doesn’t mean I don’t enjoy a good run at some fast food. Among the nastiest of vices is the urge to gorge myself on McDonald’s (MCDAnalyst Report) Double Cheeseburgers with extra pickles.

But as I’ve switched up my diet and begun to exercise, I’ve traded in the Golden Arches for much healthier choices. Sort of like how our Bear of the Day just traded in CEO John Thompson for another choice. MCD has struggled to adapt to the changing restaurant space. The push toward organic, fresh food and fast casual has left McDonald’s struggling to maintain market share. They’ve basically become the poster child for all that’s wrong with fast food in America today.

McDonald’s has made several attempts to become relevant again over the last few years but nothing has really taken off. Their McCafe push really didn’t do much to turn any McDonald’s locations into the local coffee hang out. Really all it did was add levels of complexity to an already giant array of menu items. The push for premium salads also fell by the wayside. It seems like ideas just get thrown against the wall like spaghetti to see which ones stick.

Looking at the analyst expectations for MCD, it doesn’t look like they are having too much success. In the last 30 days, sixteen analysts have revised their current year estimates to the downside for the current year, while nine have done so for next year as well. The bearish sentiment on Wall Street has managed to drop consensus for this year down from $5.60 all the way down to $5.03, while next year’s numbers have dropped from $6.06 down to $5.43.

Maybe with Thompson gone, McDonald’s will start to cut their menu down so they can be really good at a few things, help their branding, rather than trying to have something for anyone and doing many things very mediocre. Personally, I’ve invested in McDonald’s and done very well in the stock over the years. However, I’ve avoided it recently as it appears to have an identity crisis.

The stock just can’t seem to get over the $104 level with any sort of conviction. That level was hit and acted as strong resistance not just during 2013, but in 2014 as well. Both years the peak occurred in spring, smack dab in the middle of Q2. Only 2014’s selloff took the stock well beyond the 2013 lows. In December MCD traded down to $87.62. Since then there’s been a bit of a bounce off the bottoms, but the last failure at $96 implies a retest of the 52 week low could be on the horizon. Add that to a commodity channel index moving from 100 towards the 0 line, which means a confirmation of the sell signal could be just around the corner.

Investors looking for an alternative in the strong restaurant industry have several other stocks to choose from. The industry is in the Top 25% of our Zacks Industry Rank. Two stocks to look at are Zacks Rank #1 (Strong Buy) stocks Dave and Buster’s (PLAYSnapshot Report) and Ignite Restaurants (IGR).

McDonald’s: Zacks’ Bear of the Day Play

Well, it finally happened. McDonald’s (MCD – Analyst Report) slipped to a Zacks #5 Rank Strong Sell. This is not surprising if you’ve been following the earnings estimate revisions (EER) for the past year where annual EPS projections have fallen roughly 15% for both this year and next.

In fact, during this steady decline in profit estimates by the three dozen Wall Street analysts covering the iconic fast-food behemoth, the stock has consistently been a Zacks #4 Rank Sell for the past two years since it was last a #5.

What’s Wrong with Ronald?

We don’t need to know the exact inner workings of McDonald’s operations to understand the profit evaporation. The beauty of the Zacks Rank as a quantitative tool is that it uses the collective calculations of the analysts who are all tweaking their models and estimates.

And from that collective modeling we get a clear earnings trend not just every quarter, but every time an analyst makes a tweak. Here’s what the path of those estimate revisions looks like over the past few years for the global leader in quick eats…

What’s amazing to me is that the stock has not done worse in the face of these declining estimates. But much of that may have to do with the 3% dividend this monster cash-generator pays out. MCD is a very stable part of many institutional portfolios for this reason.

Consumer Tastes and Healthier Choices

I have an anecdotal theory about McDonalds which may or may not withstand the scrutiny of the analysts. I offer it as a discussion point for investors who wonder if they should buy, sell, or hold any quick service or “fast-casual” dining stock.

I work in downtown Chicago and I have been continuously impressed for the past few years with the proliferation of new lunch options at my disposal. The choices of eateries keeps growing, across ethnic origins, locations, budgets, and the spectrum of “healthfulness.”

In any given month, I can eat lunch at over a dozen different places that offer delicious, affordable, and highly nutritious options. I can’t remember the last time I went to McDonald’s for lunch. I think it was sometime this year when I had a hankering for a Filet O’ Fish.

Bottom line: MCD investors may have been banking on growth in Emerging Markets to win the day for their stock. And that may still be the card to play because the tides of consumer tastes are definitely shifting here in the US.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.

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