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Alan Farley
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McDonald's

Dow component McDonald’s Corp. (MCD) could trade higher in coming sessions after a Wells Fargo analyst predicted that reopenings of international locations will add greater second and third quarter income than previously forecasted. The stock has been rangebound since April, following a first quarter rally that lifted the fast food icon to an all-time high near 240. It’s now trading less than 7 points under that barrier and could break out soon, lifting above 250.

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Industry Recovery Set to Accelerate

The restaurant industry continues to deal with pandemic headaches, despite widespread vaccinations. Many shell-shocked customers are still reluctant to eat indoors, caught in a lockdown mentality that’s slowly passing into history in first world countries. In addition, worker shortages in the United States have forced McDonald’s to raise wages at company-owned restaurants, with more than 36,500 employees receiving an average 10% pay raise.

However, Well Fargo analyst Jon Tower believes that investors are “missing the rapid re-opening of key International Operated Markets (IOM) and the associated potential for a sharp acceleration in IOM same store sales in Q2 2021 results and Q3 to-date commentary.” He backs up his theory, noting that “IOM is a larger driver of profits than the U.S. and our Q2/Q3 IOM store profits are $167/$132 million ahead of consensus, adding 6%/4% of potential upside to consensus EBITDA.”

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Wall Street and Technical Outlook

Wall Street consensus has eased so far in 2021, now standing at an ‘Overweight’ rating based upon 23 ‘Buy’, 1 ‘Overweight’, and 9 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $225 to a Street-high $283 while the stock is set to open Thursday’s session more than $25 below the median $260 target. A little good news could go a long way in this configuration.

McDonald’s topped out near 220 in August 2019 and rolled over, dropping nearly 100 points into March 2020’s pandemic low. The subsequent uptick finally completed a round trip into the prior high in September, yielding a short-lived breakout. A first quarter downturn completed the handle of a cup and handle pattern in April but a quick buying spike failed to attract buying interest, yielding narrow rangebound action that could soon eject to the upside.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

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