'Premature to Call a Complete Turn' for McDonald's: Pro
McDonald's same-store sales turned positive in November following its dismal showing in October, but one analyst cautioned investors against thinking that this one-month reversal necessarily represents a new trend for the fast-food giant.
"So it is some positive momentum in the right direction, but it may be premature to call a complete turn right now," said Rachael Rothman, an analyst at Susquehanna Financial Group.
On Monday, the company reported its global same-store sales rose 2.4 percent last month, handily beating StreetAccount estimates that called for a 0.1 percent drop. But Rothman stressed that the company faces some strong year-ago numbers to match in December and the first quarter due to unseasonably warm weather.
The key for McDonald's stock, which has been a laggard of the Dow, will be the success of the new product offerings the company reveals to drive same-store sales, said Rothman, who has a "positive" rating and a $98 price target on its shares.
McDonald's announcement follows warnings last week from competitor Yum Brands that it expects fourth-quarter same-store sales in China to fall 4 percent and from Darden Restaurants that sales weakened this quarter.
So are these disappointments specific merely to these two restaurants or indicative of a general slowdown in the space?
"It's hard to tell whether or not the slowdown that we saw broadly in October and November was because of the election and then Sandy, and now, of course, we're going to have the issues of the fiscal cliff," Rothman said.
She added that the discretionary consumer sector is a "pretty tricky place right now" since consumers go for value and do not spend more money than necessary for a quality meal. Still, McDonald's stock may be cushioned somewhat from this consumer caution because of its attractive dividend for investors.
"I would say for something like McDonald's though it does historically trade more like a staple with the high dividend yield, and it can benefit from consumer trade down so I would be a little less concerned about it specifically for that company," Rothman said.
—Disclosure: Rachael Rothman does not own McDonald's shares.