McDonald's Finally Serves Us Something Hot
Let's check on the fast food giant as it eyes China, its shares rebound and we boost our panic point.
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* Shares of McDonald's have rebound 14% off their recent lows, erasing their drag on the portfolio.
* McDonald's looks to grow its exposure to China's growing fast-food market.
* We're boosting our panic point by five bucks.
Shares of McDonald's MCD continue to climb today, even though the larger market is selling off. Following our most recent MCD addition to the Action Alerts PLUS portfolionear $256 in early October that inched down our average cost basis, the rally in MCD shares has erased the position's drag on the portfolio. In today's Rundown, we shared the latest findings from Lending Club that 60% of consumers are living paycheck to paycheck, and more than one-third plan to dig deeper into their savings to cover holiday shopping. We see that along with record consumer credit card debt levels benefiting fast food companies and our MCD shares.
Today's outperformance follows McDonald's revealing that it struck a deal to ramp up its stake in its China business by 48% by acquiring Carlyle's CG 28% interest in that business, which also includes locations in Hong Kong and Macau. The remaining 52% is owned by Citic, a Chinese state-owned investment firm. Since 2017, the number of McDonald's stores in China has doubled to 5,500 and the country has become its second-largest market. That footprint is expected to reach 10,000 stores in China by 2028, which explains why McDonald's was keen to boost its stake and increase its exposure to China, which accounts for about 4% of total sales per data from FactSet.
The transaction, if approved, is expected to close in first quarter 2024, and would give us a reason to revisit our $325 price target. Following the 14% move in MCD shares off their recent low on Oct. 12, we will lift our panic point to $240 from $235.
AAP is long MCD.