McDonald’s shares plunge after Stephens analyst team pulled the bullish rating

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on Dec 11, 2020
  • McDonald's is a stable company, but the current risk/reward ratio is not good for long-term investors
  • Stephens analyst team pulled the bullish rating for McDonald's shares
  • McDonald's hiked its quarterly dividend by 3% to $1.29 per share

McDonald’s Corporation (NYSE: MCD) shares have weakened from $218 below $207 since the beginning of December, and the current price stands around $208. Shares of McDonald’s could be a good investment option, but now is not the best time to buy this stock because it could weaken in the upcoming weeks.

Fundamental analysis: McDonald’s has a strong cash flow, which allows it to pay and increase dividend payments

McDonald’s shares have weakened after the Stephens analyst team pulled the bullish rating and assigned a price target of $225. The main reason for this is the Covid-19 pandemic and the fact that the US stock market could enter the correction phase.

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The current risk/reward ratio is not good for long-term investors despite McDonald’s shares remaining in a bull market. McDonald’s reported that Q3 global company sales were down 2.2% from a year ago, which is very good, and the company hiked its quarterly dividend by 3% to $1.29 per share.

In the same period, earnings per share rose by 4% to $2.22, and the delivery sales increased across all of the company’s major markets. McDonald’s has a strong cash flow, which allows it to pay and increase dividend payments regularly.

McDonald’s is expanding its business, and the company added the McRib sandwich back to its menu on a national basis this December. According to analysts, McDonald’s is expected to achieve strong revenue and earnings growth in 2021, but any bad news with the COVID-19 vaccine could change this positive trend.

Technical analysis: Bears are focused on breaking the support level at $200

Technically looking, as long the price of this stock is above $200 support, it remains in the bull market, but there are some obvious risks when it comes to buying McDonald’s shares this December. A study published in Nature showed that the biggest causes of Coronavirus transmission are indoor spaces like restaurants.

There has been some positive data regarding a COVID-19 vaccine, but no one still doesn’t know what will happen with the virus in the upcoming period.

Data source: tradingview.com

The current support levels are $200 and $180; $ 220 and $230 represent the resistance levels. If the price jumps above $220 resistance, the next target could be located at $230, but if the price falls below $200, it would be a firm “sell” signal and maybe a sign of the trend reversal.

Summary

McDonald’s is expected to achieve strong revenue and earnings growth in 2021, but the Stephens analyst team pulled the stock’s bullish rating. The current risk/reward ratio is not good for long-term investors despite McDonald’s shares still remaining in a bull market. If the price jumps above $220 resistance, the next target could be located at $230, but if the price falls below $200, it would be a firm “sell” signal and maybe a sign of the trend reversal.

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