McDonald's Restaurant in Pavlovskaya square 6 in Kharkov, Ukraine

McDonalds Could Beat Q3 Earnings Expectations

Dow component McDonalds Corp. (MCD) reports Q3 2020 earnings in Monday’s pre-market, with analysts looking for a profit of $1.90 per-share on $5.36 billion in revenue. If met, earnings-per-share (EPS) would mark an 11% profit decline compared to the same quarter in 2019. The stock sold off 2.5% after posting a Q2 revenue decline of nearly 30% in July but comparative sales surged 4.6% in the third quarter, lifting the fast food icon to an all-time high.

Strong Third Quarter Sales

The stock missed top line estimates in the first and second quarters as a result of pandemic shutdowns but benefited from the summer’s return to normalcy and could easily exceed modest expectations.  However, the dreaded second wave is now underway, with the potential to force millions of folks back into their homes. Even so, the enormous popularity of drive-through, pick-up, and delivery services should keep a floor under profits and revenue until COVID runs its course.

Telsey Advisory Group analyst Bob Derrington raised McDonalds target to $250 last week, noting “same store sales trends accelerated in September to a double-digit increase, yielding its strongest U.S. monthly comps since Sept. 2004, and which carried into early October. While those especially strong September trends were not expected to last, it clearly demonstrated that when its operations, marketing, and product innovation plans are well-aligned, Mickey D is an extremely formidable industry competitor.”

Wall Street And Technical Outlook

Wall Street consensus is highly bullish, with a ‘Strong Buy’ rating based upon 20 ‘Buy’ and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $203 to a Street-high $265 while the stock closed Friday’s U.S. session about $17 below the median $236 target. This placement should yield higher prices if the chain can overcome investor fears about the second wave.

McDonalds topped out at 222 in August 2019 and sold off more than 40% into March’s 3-year low. The subsequent uptick completed a round trip into the prior high in September, yielding a breakout that failed at the end of October. The stock has been trading below the 50-day EMA for the last two weeks, signaling growing fears about the second wave.  This weak sentiment could keep a lid on gains unless the company issues unexpectedly strong Q4 guidance.

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