McDonald’s Cup & Handle Breakout PatternThe fast food giant has harnessed the perfect balance between economically-sensitive sales risk and running a successful real estate enterprise.
Dow component McDonald’s Corp. (MCD) is nearing a critical test at October’s bull market high. The rally would complete the last stage of a multiyear cup and handle breakout pattern, potentially lifting the stock well above 300. Buying interest is building above seven-month lows but price action has a tough chore replacing lost shareholder interest since accumulation indicators topped out in the fourth quarter of 2020.
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McDonald’s Real Estate
McDonald’s long-term business objectives aren’t as aggressive as many fast food rivals but the company has harnessed the perfect balance between economically-sensitive sales risk and running a successful real estate enterprise, in which the majority of franchisees leased properties from the hamburger king and now owe monthly payments. There’s little downside in this diabolical calculation, given the bright outlook for world property prices in the new decade.
Deutsche Bank analyst Brian Mullan just upgraded shares, noting “continued momentum in the U.S. business as well as an arguably underappreciated market share opportunity in the IOM segment should lead to upward revisions to consensus EPS, specifically in 2022e and potentially in 2023e as well. In addition, we think that these near-term factors, combined with an attractive long-term global growth outlook, are supportive of MCD holding a ~24 to 25x P/E multiple, for a period of time, throughout an upward earnings revision cycle”.
Wall Street and Technical Outlook
Wall Street consensus has grown more bullish in recent months, yielding an ‘Overweight’ rating based upon 25 ‘Buy’, 2 ‘Overweight’, and 8 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions. Price targets currently range from a low of $209 to a Street-high $273 while the stock is set to open Thursday’s session about $18 under the median $242 target. This modest placement indicates continued uncertainty about international markets.
McDonald’s topped out above 220 in the third quarter of 2019 and turned lower, accelerating to a three-year low during 2020’s pandemic decline. The subsequent recovery wave completed a 100% retracement into the prior high in September, yielding a failed October breakout, followed by a rounded corrective pattern. The stock is now lifting off the 200-day moving average, potentially completing the handle of a multiyear cup and handle breakout pattern.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.