×

McDonald’s Set For New High on Smoothies, Earnings?

McDonald’s shares are poised to break out to an all-time high next week as its earnings report shows the world’s largest restaurant company is bucking an economic slowdown in Europe and the U.S. with menu innovations, interior renovations and consumers’ hunger for savings.

The stock touched an all-time high Thursday before retreating, its fourth failure in three months to stay above the $70 level. If analysts and investors are correct, its report next Friday should do the trick.

“We are encouraged that Europe continues to produce strong results despite the recent financial crisis,” wrote Baird analyst David Tarantino in a report to clients at the end of June. “While the company did not provide a specific update, management’s upbeat tone seemed to suggest that sales have not slowed meaningfully from the strong results seen in May.” Tarantino rates the shares ‘outperform’.

McDonald’s rose this week as the Dow Jones Industrial Average was dragged down by disappointing results from Bank of America. The stock has outperformed the Dow over the last 12 months, five years and decade as the company consistently navigates its way through strong and weak global economies.

The restaurant chain “is uniquely positioned to leverage its pipeline and marketing scale through a recovery,” wrote Credit Suisse’s Keith Siegner, in a note at the start of June. “At the same time, its unparalleled value mind-share hedges the risk of a hiccup in recovery momentum.”

Its latest new product innovation, following such successes as the ‘McGriddle’, ‘Snack Wraps’ and premium coffee, is the smoothie. McDonald’s began selling the cold, fruity drinks this week. Demand has been so great that it had to suspend a free sampling event for next week.

“Smoothies are the most recent anticipated catalyst and European fears were misplaced,” said Pete Najarian, co-founder of OptionsMonster.com and TradeMonster.com. The shares offer “great value, great growth and a dividend yield when talk of returns is so pressing.”

The 2-year Treasury yield hit a record low this week as investors continued to flood into the safety of government bonds on fears the global economy is facing another slowdown. Worries about a weak domestic economy have seemed to trump concerns about Europe.

In the first quarter, U.S. sales were the weak link, growing just 1.5 percent. European sales jumped 5.2 percent. The stock sports a dividend yield of 3.1 percent and a below-industry-average price-earnings ratio of 16.5

Besides Smoothies and earnings anticipation, a reason for the most recent run in the stock could be the falling dollar , which makes McDonald’s products more affordable overseas, where it gets the majority of its sales. If the Euro was to go back into a tailspin in the second half of the year, that could once again deny McDonald’s of that $70 perch.

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC.


______________________________________________________
Got something to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap! If you'd prefer to make a comment but not have it published on our website send your message to fastmoney@cnbc.com.

Trader disclosure: On July 16, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour owns (AAPL), (BAC), (GE), (MON), (POT), (VALE); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Finerman owns (AAPL); Finerman’s firm owns (BAC); Finerman owns (BAC) and (BAC) preferred; Finerman’s firm owns (BP) calls; Finerman’s firm owns (JPM); Finerman owns (JPM); Finerman’s firm owns (SPX) puts; Finerman’s firm is short (IJR); Finerman’s firm is short (MDY); Finerman’s firm is short (SPY); Finerman’s firm is short (IWM); Jon Najarian owns (GS) put spreads

For Patty Edwards
Edwards owns (AAPL) for clients
Edwards owns (BAC) for clients
Edwards owns (C) for clients
Edwards owns (GE) for clients
Edwards owns (GOOG) for clients
Edwards owns (HAL) for clients
Edwards owns (JPM) for clients
Edwards owns (MOS) for clients
Edwards owns (MS) for clients
Edwards owns (TXN) for clients
Edwards owns (RIG) for clients

For Whitney Tilson
Funds Managed By Whitney Tilson Own (BP)
Funds Managed By Whitney Tilson Own (GS)
Funds Managed By Whitney Tilson Own (C)
Funds Managed By Whitney Tilson Own (JPM)