Blue-chip burger baron McDonald's (MCD) was in focus Monday morning after the company unveiled its fourth-quarter earnings. The fast-food chain reported net income of $1.24 billion, or $1.16 per share, slightly improved from its year-ago profit of $1.22 billion, or $1.11 per share. Revenue for the quarter climbed 4% to $6.21 billion.
The fourth-quarter results were more or less in line with Wall Street's expectations, but the same can't be said of its December sales. Global same-store sales rose 3.7% across the board, led by an 8.9% gain in the Asia-Pacific, Middle East and Africa (APMEA). U.S. same-store sales increased 2.6% in December, while sales at restaurants open at least 13 months declined 0.5% in Europe.
By contrast, analysts were predicting a monthly same-store sales gain of 3.9% in the U.S. and 3.4% in Europe. Only the APMEA results surpassed expectations, with Wall Street forecasting a slightly tamer 5.7% jump. McDonald's cited poor winter weather for the lackluster December sales performance.
MCD has turned fractionally lower as traders digest these developments, with the security trading below $75 at last check. The shares have shed 2.3% of their value already in 2011, but MCD is still trading above support at its rising 10-month moving average. This long-term trendline hasn't been breached on a monthly closing basis since August 2009, and could continue to provide a technical floor for the shares.
However, there is some near-term downgrade risk for MCD following the disappointing December sales data. Zacks reports that 16 analysts maintain a buy or better rating on the shares, compared to eight holds and zero sells. Plus, MCD's average 12-month price target of $85.42 implies expected upside of nearly 14% to Friday's close at $75.01 -- and this consensus forecast would also represent a new record high for the stock.
In light of McDonald's sales miss, the stock could be vulnerable to bearish brokerage notes during the coming weeks. Any downgrades or price-target cuts from formerly bullish analysts could spark a fresh round of selling pressure on the stock, which could translate to a serious test of trendline support for MCD.
Elizabeth Harrow is a senior equities analyst and financial writer in the research department at Schaeffer's Investment Research.