Should McDonald's Bulls Be Concerned?
McDonald's Corporation (NYSE: MCD) shares have rebounded nicely off of the October lows, but may be set to top out, according to technicians.
Will that top be short-term in nature or should the McDonald's bulls be more concerned? Let's take a look at the fundamentals and technicals to help develop a plan of action.
What The Bulls See
- A 3.5 percent dividend yield, but with a slightly high 64 percent payout ratio.
- Cheap valuation metrics: An enterprise value of $105.30 billion that trumps the market capitalization of $93.52 billion and a price-to-sales ratio of 3.34.
- 18.9 percent net profit margins that spun off $3.8 billion in levered free cash flows annually.
- A current ratio of 1.25, short-term balance sheet stability.
What The Bears See
- Expensive valuation metrics: A PE of just over 18, which seems expensive considering 2014 estimated growth in revenues of 0 percent and in EPS of 12.5 percent, and a price-to-book ratio of 6.85.
- Perhaps too much debt: cash of $3.23 billion versus more than $15 billion in total debt and a debt-to-equity ratio of 111.04 percent.
The Technical Take
Technicians note that McDonald's may have completed or be in the process of completing the "a" wave of an "abc" upside correction. If they are correct, the next move for McDonald's will be to the downside with a support level/target of $92.25. Once that pullback occurs -- if it occurs –- they feel another move higher (wave "c") will take place that should bring the stock up to "correction resistance" and horizontal line resistance at $99.13-$99.19.
All of those are short-term moves. The long-term picture in McDonald's is that it is still in an uptrend despite the rather lengthy consolidation that has occurred since the beginning of 2012.
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