Earnings season gives companies an opportunity to not only report how well they’ve done in the most recent quarter, but how they expect the next few quarters to play out. For companies that don’t have good numbers to report now, future expectations can help soothe the markets.
That’s especially true when a company has been facing some known challenges. That can include a rise in competition, price pressure, or changing customer tastes.
For fast food giant McDonald’s (MCD), it’s been a mix of all three. Shares have been declining in recent weeks, in expectation of a weak quarter. While earnings were terrible, the company expects to turnaround store sales with new value meals.
Shares are down about 10% over the past year, and are off about 15% from their 52-week high. McDonald’s has been trending lower as higher prices have impacted consumer spending. It turns out that consumers want fast food to be both fast and cheap.
Action to take: Shares can likely stage a rally over the summer. The value meals will likely help boost store sales in the next quarter. But longer-term, such deals may impact profit margins, making this more of a short-term bounce trade.
At current prices, McDonald’s pays a 2.6% dividend.
For traders, the October $280 calls, last trading for about $3.35, could see mid-double-digit returns in the coming weeks. Traders will likely want to get out of the trade in early September or better, as shares may start to trend lower ahead of the next quarterly earnings report.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.