MCD: UnHappy Meal

by Dan March 8, 2012 2:55 pm • Commentary

MCD is one of the few stocks on my board that is down today as a result of the company missing their Feb same store sales estimates for the first time since August 2011.

Feb Comps, actual vs estimated:

Total up 7.5% vs 8.3% estimate

Europe up 4% vs 6.4% estimate

U.S. up 11.1% vs 8.8% estimate

Asia, Africa & ME  up 2.4%  vs 8.2% estimate  

Prior to today’s 3.25% sell off, the stock had been severely lagging the SPX ytd, even though recently trading within a few % of its all time highs made in January of this year.  The comps sales miss detailed above highlights a trend that seems to manifesting itself the world over, U.S. strength outweighing weakness in Europe and Asia.  This is of a particular concern for a multi-national company like MCD who last year relied on sales from Europe to make up about 40% of its total.  In a week where slowing growth in China and austerity in Europe have again become a focus of investors, it may make sense to try to extrapolate this data point to other multi-nationals.  I am not saying get all “beared up” on this one number but if this becomes a trend in the months to come, we will likely look back and view this incident as the “canary in the coal mine”.

Technically the stock has now just broken an uptrend that has been intact since last year at this time, and the graph below highlights this near 45% degree angle.  The red circle in the middle amplifies the weakness in Sept when the company missed Aug comp sales.  I highlight this because the stock then too sold off about 3.5% after the miss and went a bit lower before reloading back into the uptrend.

[caption id="attachment_9406" align="aligncenter" width="300" caption="1 YR MCD Chart from Bloomberg LP"][/caption]


SO I highlight the story and the chart more from the perspective of keeping a close eye on the name and related ones, especially at a time where it seems that anything high-end consumer discretionary (AAPL, COH & NKE) is going through the roof, while low end consumer names like MCD and WMT struggle a bit to keep pace.

I guess I would make one other point here…..MCD trades at about 17x this years earnings which are expected to grow at only about 9%, while sales are only expected to grow at about 5%….seems a bit expensive when you consider the potential for currency headwinds and rising input costs all over the place…..I am just saying……this could be a situation to keep a close eye on……and one that might make sense to extrapolate to names like NKE that could face similar headwinds.