Together with various equities, shares of McDonald’s Corporation declined sharply on Friday and Monday in the wake of Britain’s exit from the European Union. However, the fast-food giant is showing signs of recovery.
The response to the Brexit is likely incoherent for the larger market. Meanwhile, the effect of the US and international markets seems temporary, as Britain is a steady trade partner for the rest of Europe and for the Unites States. It will be essential to discuss new trade agreements, however, the markets always prevail when demand is present. Market analysts expect the market to regain most of its losses very soon.
McDonald’s is a well-managed firm that holds a remarkable structural history. The company a dividend yield of 3.1 percent and robust technical performance, indicating that there no reason for McDonald’s to fall any further. Even though its global business accounts for a major share of its overall revenue, this is not going to change as a result of the Brexit.
The company’s stock price had been trading below support for four consecutive days, as of Monday’s close. Furthermore, both Friday and Monday sessions witnessed strong downward gaps. With the stock’s narrow trading range and small span over the previous month, the result was extensive.
Supporting a potential rebound into bullish territory, Monday’s trading was joined by a strong volume spike and momentum, as gauged by a relative strength index, shifting into oversold territory for the first time in six months. During this period, the RSI basically recovered between 30 and 70. This implies that the stock price will edge higher as well.
Looking at the July 8 weekly stock options, the 116 call ended Monday’s session at a bid of 1.88. Counting trading fees, a single call option will cost nearly $197. With the stock settling at $116.30 on Monday, the call is already in the money, which means that intrinsic value will move greatly with an advance in the stock price.
The chances of a fast rebound for McDonald’s makes it a reasonable trade with minimal risk under $200.
McDonald’s Stock Downgraded
McDonald’s was recently downgraded by analysts at Credit Suisse, who cut their price target for the stock from $135 to $130. According to the analysts’ measure, almost 37 percent of the fast-food giant’s revenue comes from Europe, and approximately 9 percent comes from the United Kingdom alone.
The company’s exposure to the volatile region could provide massive headwinds, particularly as the European currency continues to lose against the US dollar.
Moreover, the analysts noted a withdrawal in customer spending as a driving factor for the downgrade, in addition to the commotion over promotions starting cool off. The company has seen massive success in the offering of breakfast menu items all-day, however, the longer the promo runs, the more it is likely to become just another addition to the menu.
Brexit: Not a Big Deal for McDonald’s
McDonald’s has taken advantage of the dull economic growth and political volatility in the United Kingdom over the past years. Therefore, Brexit-linked economic and political issues shouldn’t impact the leading fast-food chain, which operates more than 1,200 restaurants in the country.
The first quarter of fiscal year 2016 marked the 40th straight quarter of same-store sales growth for McDonald’s UK branch, as it gained from the introduction of new touchscreen ordering systems.
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