With shares of McDonald's (NYSE:MCD) trading around $102, is MCD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
McDonald’'s franchises and operates McDonald’s restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. Its restaurants offer various food items, soft drinks, coffee, and other beverages, as well as breakfast menus. The products provided by McDonald’s fulfill cravings at competitive prices in convenient locations worldwide. The McDonald’s craze shows no signs of slowing, so the company has continued its expansion to just about every country on the globe. As consumers continue to enjoy the McDonald’s products, look for the company to continue to see increased profits.
T = Technicals on the Stock Chart are Strong
McDonald's stock has seen a monster bullish run over the last several years. In fact, the stock is now trading at all-time high prices and seems to be wanting more. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, McDonald's is trading above its rising key averages which signal neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of McDonald's options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| McDonald's Options | 15.65% | 43% | 41% |
What does this mean? This means that investors or traders are buying a good amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| May Options | Flat | Average |
| June Options | Flat | Average |
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a good amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Increasing Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on McDonald's’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for McDonald's look like and more importantly, how did the markets like these numbers?
| 2013 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | |
| Earnings Growth (Y-O-Y) | 2.44% | 3.83% | -1.38% | -2.22% |
| Revenue Growth (Y-O-Y) | 0.90% | 1.90% | -0.19% | 0.15% |
| Earnings Reaction | -1.95% | 0.57% | -4.45% | -2.88% |
McDonald's has seen increasing earnings and revenue figures over most of the last four quarters. From these figures, the markets have expected a little more from McDonald's’s recent earnings announcements.
P = Excellent Relative Performance Versus Peers and Sector
How has McDonald's stock done relative to its peers, Burger King (NYSE:BKW), Yum! Brands (NYSE:YUM), Wendy’s (NASDAQ:WEN), and sector?
| McDonald's | Burger King | Yum! Brands | Wendy’s | Sector | |
| Year-to-Date Return | 15.45% | 7.48% | 2.29% | 22.23% | 15.05% |
McDonald's has been a relative performance leader, year-to-date.
Conclusion
McDonald's provides highly demanded food items to significant amounts of consumers who enjoy their items around the world. The stock has done very well for investors of the last several years and is now trading at all-time high prices. Earnings and revenue figures have done reasonably well, however, investors have expected a little more from the company. Relative to its strong peers and sector, McDonald’s has been a performance leader, year-to-date. Look for McDonald’s to continue to OUTPERFORM.
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