McDonald’s is singing a Phil Collins song: “I Missed Again.”
The fast food giant missed Wall Street’s earnings expectations for the second-straight quarter as its same-store sales fell for the third consecutive quarter. In the United States, same-store sales actually fell 1.5 percent.
As if problems in the U.S. weren’t enough, now McDonald’s – along with Starbucks, Burger King, and Yum Brands – is dealing with a scandal in China as one of its meat suppliers was alleged to have sold expired meat to the golden arches. McDonald’s has about 2,000 restaurants in China.
Gina Sanchez, founder of Chantico Global, said McDonald’s brand and growth will likely be hurt in China, but the company itself is still solid.
“McDonald’s still has a very strong brand,” said Sanchez, a CNBC contributor. “They still have strong revenue growth. Even though their same-store sales are flagging a bit and they did obviously miss earnings, they have a good balance sheet position. They have low debt. They have expanding profit margins. So I wouldn’t through the baby out with the bathwater here.”
Those trading the stock should keep an eye out for the $94 per share level, according to Steven Pytlar, chief equity strategist at Prime Executions. That’s where he sees previous support for the stock.
“McDonald’s has begun to lag,” Pytlarsaid. “It has started to find resistance at that $102 - $103 level over the last couple of years with several tests. This describes a stock that is being sold. It’s under distribution.”
A test of the $94 level will say a lot about where the stock is headed because it was “previously a level where buyers came in,” Pytlar said. “But that was before we had this meat scandal and some missed earnings.”
A break below $94 means the stock could then find support at slightly under $85 per share, a low reached in November.
“We would be cautiously negative on the stock going forward,” said Pytlar. Should the stock trader lower than $94, “it could be a pretty steep drop especially for a stock like McDonald’s.”
Sanchez agrees with Pytlar, saying, “If it falls below that $94, it could be ugly.”
To see the full discussion on McDonald’s, with Pytlar on the technicals and Sanchez on the fundamentals, watch the above video.
- Consumer Discretionary