By: Todd McDonald, Analyst
McDonald's (MCD) is scheduled to report 1Q 2013 earnings before the opening bell on Friday, April 19. The results are typically released just prior to 8:00 a.m. EST, and will follow with a conference call at 11:00 a.m. This quarter, McDonald's has been steadily trending higher, even in the face of concerns over the Bird Flu in China and the impact of a stronger Dollar on international sales.
Outliers and Strategy
- Earnings Per Share: McDonald's typically reports a "clean" number that is comparable to consensus estimates. The current Street estimate is $1.27 per share (Source: Yahoo Finance) The range is $1.23 to $1.34.
- Revenues: The current consensus estimate is $6.59 bln, with a range of $6.33 bln to $6.80 bln.
- Global Comparable Sales: According to Zack's Investment Research, the estimate for Global Comparable Sales for the 1Q 2013 period is for a decrease of 1.2%, with a range of -0.9% to -1.5%.
- Sympathy Plays: Jack in the Box Inc. (JACK), Burger King Worldwide, Inc. (BKW), Wendy's (WEN), Yum Brands (YUM)
- Implied Volatility: Over the past eight quarters, the average, absolute move one day after earnings has been 2.34%. Using options premiums, traders are expecting a move of approximately 2.35% after earnings are disseminated.
- 04/16: Fitch Ratings believes that McDonald's is one of the most at-risk companies from the H7N9 avian influenza (Bird Flu) scare in China. According to the post on StreetInsider.com, past pandemics have negatively affected global restaurant companies.
- 04/01: Analysts at Deutsche Bank believe that the recent strength in the US Dollar could negatively affect McDonald's bottom line. According to a post on StreetInsider.com, the firm maintained its Buy rating and price target of $108.
- 03/08: According to a post on StreetInsider.com, Goldman Sachs raised its price target to $104, with a Neutral rating. Analyst Michael Kelter cites global comparable store sales stabilization.
- 03/08: McDonald's global comparable store sales decreased 1.5% in the month of February, versus estimates of -1.6%. The company attributes the marginal decline to a robust February 2012.
McDonald's shares have traded steadily higher this year, with very shallow pullbacks that have been quickly bought. After making an all-time high in recent sessions, shares have been consolidating to work off a slightly overbought reading on RSI. If earnings results surprise to the upside, look for new all-time highs. If earnings disappoint, initial support can be found at the psychological $100 mark, followed by the $98 area, and ultimately the 50-day SMA near $97.66. (Chart courtesy of StockCharts.com)
McDonald's has had a solid 2013, rising almost 18% year-to-date, thanks in part to an improving economic backdrop and recovering sales figures. However, recent headwinds such as a significantly appreciating dollar and the Avian Bird Flu scare in China have recently become causes for concern. With these circumstances, it would take stellar numbers from the upcoming earnings release to push the shares past recent highs. Look for earnings per share and revenues towards the high end of the range of estimates, coupled with a beat on global comparable store sales for a buy signal. Anything less has the potential to elicit a negative reaction.
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