Barbarian At The Gate: McDonald's (MCD)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified McDonald's ( MCD) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified McDonald's as such a stock due to the following factors:

  • MCD has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $590.5 million.
  • MCD has traded 4.7 million shares today.
  • MCD traded in a range 215.8% of the normal price range with a price range of $2.84.
  • MCD traded above its daily resistance level (quality: 77 days, meaning that the stock is crossing a resistance level set by the last 77 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on MCD:

McDonald's Corporation operates and franchises McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. The company's restaurants offer various food products, soft drinks, coffee, and other beverages. The stock currently has a dividend yield of 3.5%. MCD has a PE ratio of 22. Currently there are 7 analysts that rate McDonald's a buy, 1 analyst rates it a sell, and 14 rate it a hold.

The average volume for McDonald's has been 7.1 million shares per day over the past 30 days. McDonald's has a market cap of $94.0 billion and is part of the services sector and leisure industry. The stock has a beta of 0.78 and a short float of 1.5% with 2.46 days to cover. Shares are up 4.6% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates McDonald's as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity and expanding profit margins. We feel its strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

Highlights from the ratings report include:
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, MCDONALD'S CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • 43.42% is the gross profit margin for MCDONALD'S CORP which we consider to be strong. Regardless of MCD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MCD's net profit margin of 13.61% compares favorably to the industry average.
  • MCD, with its decline in revenue, slightly underperformed the industry average of 7.4%. Since the same quarter one year prior, revenues fell by 11.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The share price of MCDONALD'S CORP has not done very well: it is down 5.17% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
  • Net operating cash flow has decreased to $1,699.50 million or 10.89% when compared to the same quarter last year. Despite a decrease in cash flow of 10.89%, MCDONALD'S CORP is in line with the industry average cash flow growth rate of -16.93%.

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