McDonald’s (MCD) Valuation and Technical Stock Analysis

This stock valuation and analysis article is a continuation of our previous posting: Is McDonald's Stock a Good Buy, Sell or Hold?. Check out the previous piece as it presents a fundamental analysis of McDonald’s Corporation.

  1. Valuation Overview of McDonald’s Corporation

With a current market cap of $99.30B, MCD is by far the largest of its main competitors – Burger King Worldwide (Stock: BKW) and Yum! Brands (Stock: YUM). On a Trailing P/E valuation MCD is the cheapest of the three, trading at multiples of 18.37x, compared with 22.15x for YUM and a staggering 48x for BKW.

On a Trailing Twelve Month (TTM) Price/Sales valuation, MCD is trading at 3.67x, at a premium to YUM's 2.35x, but more in line with BKW's valuation of 3.78x.

While BKW is valued at a low Price/Book value of 5.46x, YUM's P/B valuation is at the higher end of the spectrum, at 13.74x. MCD sits between those 2 as it trades at a P/B valuation of 6.67x.

Mcdonald’s has a much higher 3-year average revenue growth than the Industry in general (6.6% versus 4.4%). And given that the Industry averages for TTM P/E and P/B are 32.7x and 6.8x respectively, that makes MCD fairly evenly valued at these levels.

  1. McDonald’s Technical Stock Analysis

At the time of this analysis, MCD is trading at $99.05, which is $4.65 shy of its upper 52-week trading range of between $83.31 and $103.70. As is apparent from the price chart below, the stock had a fairly bumpy ride in 2012. From Dec 2012 to May 3, 2013, the stock broke out of its 2012 trading range and surged 18.24%.

MCD - Technicals

Since May of this year, however, the stock has broken its steep rise and has been trading in a narrow price range of $98.12 and $103.70. Between April 17th and 22nd, the stock lost almost 3.65% of its value relative to its closing price on Apr 16th ($103.04), as a result of a lack luster Q1 earnings report. However, throughout the month of May the stock consistently traded above its 50-day Simple Moving Average (SMA), breaking support at that level only fleetingly on May 9th, only to rally higher. 

The stock once again tested support at its 50-day SMA on May 24, but trended slightly higher on the next trading session. At the time of this writing, the stock has broken support at the 50-day SMA, closing at $99.05, losing 2.16% of its previous day's closing value.

This development will alarm technical minded investors because, unless there is some catalyst to turn the stock around, the next milestone to look for will be a drop to the 100-day support leval at $97.49. And should it break through that support, it is likely that the next test will be down to its 200-day SMA of $92.62.

Investors will need to watch comp sales on a monthly basis to see if the company's efforts to turn things around are paying off. Any good news prior to Q2 earnings may as yet drive the stock higher.

  1. Bottom Line Conclusion

Based on our fundamental, technical and valuation analysis as presented above, MarketConsensus rates McDonald’s stock (MCD) as a HOLD. But like other consumer discretionary stocks, a stronger rebound in global economies could change our investment thesis. Depending on how the stock performs, this could then lead to a change in our recommendation from HOLD to a BUY of MCD stock.