MCD rallied 2.6% yesterday, but on no volume. Given yesterday’s strength, we added to our short position in MCD in the Hedgeye portfolio. Were January trends a game changer for MCD? I’m not convinced. Yesterday, MCD reported that January systemwide sales grew 7.4%, or 6.7% in constant currencies, against an easy comparison. As we move through the balance of the year, these trends will slow.
As you can see from the first chart below, the street is forecasting accelerating sales trends as we progress through the year with little impact on operating profit margins from higher inflation.
We believe that the street’s expectations are very aggressive, as reflected by our 2011 estimates, as shown in the second chart below. We expect to see earnings revisions through the balance of the year.
Howard Penney
Managing Director