McDonald’s Beats 2Q17 Estimates, US Comp Sales up 3.9%

Man using McDonalds automated kiosk - photo - August 2017After crushing fiscal 2017 second-quarter analysts’ estimates, the stock of burger giant McDonald’s Corp (NYSE: MCD) recorded a new 12-month high of $159.98 last week. The company, however, reported a 3% decline in revenue, compared to last year. On the basis of facts presented below, we anticipate the stock, which closed at $153.82 on Friday, to record new highs in the days to come.

The Illinois-based company reported Q2 2017 revenues of $1.395 billion, or $1.70 per share, on revenues of $6.05 billion. In Q2 2016, McDonald’s recorded earnings of $1.093 billion, or $1.25 per share, on revenues of $6.265 billion. On average, the Reuters estimate was $1.62 per share on revenues of $5.96 billion. Exchange rate conversions had a 3% negative impact on the earnings. At constant currency, the earnings grew 21% y-o-y.

Global Comp sales increased 6.6%, versus FactSet Consensus of 2.9% growth. The US same-store sales grew 3.9%, against the Wall Street analysts expectation of 2.9% increase.

In particular, Comps in high-growth markets, which include China, increased 7%, compared with a 3.8% increase in the previous quarter. Similarly, same-store sales in foundational markets, which include Japan, increased 13%, compared with a 10.7% growth in the last quarter.

During the quarter, with due consideration to budget conscious customers, the fast-food chain had introduced a range of new menu items including a soft drink for $1 and McCafe beverages for $2. Signature crafted sandwiches offered for a price of between $5 and $7 also boosted sales. Additionally, the company started offering food delivery and also increased the self-order kiosks. Many of its restaurants were remodelled. Still, the revenue declined year-over-year as the company sold some of its restaurants to franchisees. Additionally, McDonald’s is no longer collecting the entire due revenue from the franchisees. Still, revenues from franchise-operated restaurants increased 5.6% to $2.48 billion in 2Q17. Thus, considering the strong 2Q17 results and initiatives taken by the company to increase sales, we forecast an upswing in the stock of McDonald’s.

Since early June, the stock has been consolidating at 153 levels. Furthermore, the Williams’ Percentage Range indicator is in the oversold region. So, there exists a high probability of a rally in the stock.

McDonalds - Technical Analysis - 7th August 2017

We are looking at the possibility of investing in a call option when the stock trades near 153 in the NYSE. We also expect the option to remain valid for a period of one week.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.