Has McDonald’s run into supersized problems?
Shares of the fast food giant got off to a rocky start Monday after reporting a rise in global sales for the third straight month, but marked the seventh straight month of declines for the U.S.
McDonald’s has badly trailed the Dow Jones industrial average, rising just 3 percent in the past year while the Dow is up 11 percent over that time. The performance becomes even dimmer when compared with rivals Burger King Worldwide and Wendy’s, which have posted respective returns of 30 and 43 percent.
So, could McDonald’s be a bargain now?
“The charts say to sell this stock,” said Ari Wald, head of technical analysis at Oppenheimer.
Wald pointed out that while the downside for the stock is limited, he feels the underperformance to the broader market is a huge red flag.
“I don’t want to fight this very strong downtrend,” said Wald. “In April and May we rallied back into some prior lows from 2011. Now this inflection lower again is suggesting to me that this long-term downtrend might be resuming to the down side. And until that can start to base, I would rather allocate my money elsewhere.”
(Watch: Cramer's Mad Dash: McDonald's)
But the fundamentals are not quite so cut and dry.
“I actually think McDonald’s is interesting here,” said Marc Lichtenfeld, chief income strategist at The Oxford Club. “I like the fact that the company is growing free cash flow, and they’re growing it significantly. Projections are for 11 percent free cash flow growth per year over the next several years. And keep in mind those forecasts are by mostly bearish Wall Street analysts.”
According to Lichtenfeld, those projections show potential for upgrades and estimate revisions, as the majority of Wall Street analysts rate McDonald’s below a “buy.”
“The stock isn’t priced that well right now,” said Lichtenfeld. “It’s a little bit expensive. I think you can dip your toe in the water here if you’re a long-term investor, but if the stock recedes down to the low to mid-90s I think it gets very attractive.”
Check out the video for the full discussion on Monday’s episode of CNBC’s “Street Signs.”
Disclosure: MCD is rated “perform” by Oppenheimer & Co.
- Consumer Discretionary