McDonalds share price: a drive-thru winner

It may seem to be something of an aberration to note that fast food chain McDonalds did recently manage to see its share price beat the pre COVID-19 peak in February at $218, with a $230 high in October. This is an event that few blue chips stocks have managed to achieve. It is all the more impressive given the way that in the immediate aftermath of the pandemic striking in March when McDonalds share price hit a low of $124, underlining how strong the recovery here has been. It also underlines a couple of the best known sayings regarding shares, first “buy the dips” and also to be greedy when others are fearful – in the manner of Warren Buffett’s well known advice.

Clearly, anyone buying into the McDonalds share price in March was betting on not only a technical rebound for the shares, but also for the fundamental prospects of the company improving – most notably for people to be able to dine in restaurants. What has been interesting in recent months is that there has been a fundamental recovery catching up with the McDonalds share price bounce, but perhaps one which has been delivered in ways that might not have been expected even relatively recently.

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MCD share price: a september surge

The headlines in September for McDonald’s was that it had its best month in nearly 10 years, something which of course could fed into the Q3 sales figures, expected to be delivered on November 9. This would be a reason for bulls of McDonalds shares to celebrate, as rather like the share price rise to beat the previous pre-pandemic peak, few “bricks and mortar” businesses of any variety have been able to improve their performance on any metric since COVID-19 struck.

In fact, the reality for McDonalds shares has as might be expected a more complicated edge than at first glance. There is a gap between the improved performance in the US and the rest of the world. This has been “bought” by more advertising, and as far as the shares are concerned, by raising the dividend. Across the world same store sales fell 2.2% versus the US rise of nearly 5%, and the previous quarter drop of 23.9%.

 

McDonalds share price: US same store sales shine

A big breakthrough, and an obvious one, has been the revival of the drive-thru, something which ensures social distancing, and also may explain how same store sales have been up in the US. This win was the result of the average customer spend being higher too, another achievement given the plunging GDP and soaring unemployment in the months immediately after the pandemic began.

The explanation of this statistic is that a trip to McDonalds has almost become an act of comfort shopping, given store closures in many shopping malls.

 

MCD share price impact

But what should we be expecting from the latest update at the fast food giant, and how will this impact MCD shares? Despite a brave performance, and one that hit a peak towards the end of the summer, the expectation of lower revenues leading to lower earnings has to be the most likely scenario. At this stage though anything better than a $2 earnings per share, versus a $1.92 expectation could help McDonalds shares, especially if revenues can remain well above the $5bn level seen in the same quarter last year.

 

Daily chart showing McDonalds share price daily movements for 2020

 

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