Bear Of The Day: McDonald's

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 (MCD - Analyst ReportDouble 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 (PLAY - Snapshot Report) and Ignite Restaurants (IGR).

Disclosure: Zacks.com contains statements and ...

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Terry Caruso 9 years ago Member's comment

I can't tell (Bearish sentiment on $MCD)... Just like $SEAS. The days of heavy foot traffic is over, so why is the stock going up?

Kurt Benson 9 years ago Member's comment

It seems that the rising tide is raising all ships. Again and again, etc..