McDonald's seemingly gets away with its late October's E. coli incident. One person dead and dozens sick from infection linked to Quarter Pounder popular hamburgers. The market value of this huge and most famous fast food chain lost up to 12% after facing a following drop in visitors over the next couple of months. The deepest point of a pullback was at nearly $276.5 on January 16. However, it didn't take long to see the price jumping above $310. Thus, shares of McDonald's closed at $308.42 this Monday's regular session after a 4.8% bullish jump to follow the firm's comparable sales during the last quarter that topped consensus bets.
The average estimate of Bloomberg analyst pool was focused around a possible quarterly decline around 0.90%. Global comparable sales of McDonald's expanded by 0.4% in the last three months of 2024, with performance being led reportedly by the Middle East and Japan. Demand pressure was limited after easing due to an informal boycott of Western chains over their pro-Israeli stance in the Gaza conflict. It is probably a thing of the past. And now weakness in the largest market for McDonald's, which is certainly the U.S., has been mostly overcome as well, due to lower-priced options and "exciting menu innovations" like a Chicken Big Mac and bringing back snack wraps to restore consumer confidence, according to the fast-food chain's CEO Chris Kempczinski. Extending its $5 meal deal into December helped much, but the average transaction size reached more than $10 in the U.S. Group-wide, MCD revenue was only 0.3% lower YoY at $6.39 billion, while operating income rose 2.4% to $2.87 billion, despite the shocks, including an additional pre-tax expense of $221 million because of a restructuring process.
I mentioned my target price at $325 to be touched even before the end of winter or at least in the beginning of spring, citing factors of more cost-conscious consumers to choose reasonably priced food, attractive and new limited-time offerings and potentially lower interest rates. The last argument remains an unfulfilled hope, but the stock has travelled most of its supposed path without a proper contribution from central banks. This means the ultimate goal could be shifted even to a higher price area, let's say between $330 and $350. By the way, Citigroup analysts see a Buy rating with a $336 price target. In early November, we discussed a great chance of adding more buy positions for MCD in case of retesting "the levels around $275 or a bit lower" as I didn't believe in larger damage to the stock. This assumption was one hundred percent hitting in terms of the bottoming area. The next question is how accurately the upper target will be achieved. Hope to see it soon.
When pointing at potential post-election gainers, I added a few more U.S. budget chain store names like Target (TGT) and Walmart (WMT), besides McDonald's. If Target shares have so far only seen a partial recovery, then Walmart's price has found a path from $82.5 three months ago to $103 in the first week of February. Gradually, the turn of the remaining forecasts comes.
