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Takeaway: Our bearish thesis on MCD remains in play.

Editor's note: Hedgeye analyst Howard Penney has basically been the sole bear on McDonald's this whole year. And he's been dead right. Some interesting stats: MCD is down -5.5% since Penney made his short call earlier this year on April 25th. For comparison's sake, the XLY (Consumer Discretionary) has risen almost +20% since then. The S&P 500 is up over +14%. It's hard to beat being right on the short side in a red-hot bull market.

$MCD: Nope, We're Not Lovin' It - mcd1

Here's a snippet from a report he sent out earlier this afternoon.

“Looking ahead to 2014, the U.S. is intent on rebuilding its underlying business momentum by strengthening key elements of customer service and leveraging the breadth of menu choices across all dayparts and value tiers.”

- McDonald’s November Press Release

We found the above quote to be quite interesting.  In October, McDonald’s spoke of strengthening its underlying business momentum in 2014.  In November, however, the talk has shifted to rebuilding its underlying business momentum in 2014.  As we have been calling out for the greater part of 2013, MCD has issues in its underlying core business that management must address.  The fact that management finally acknowledged it needs to rebuild its U.S. business momentum is a positive; but it is not a solution...

...Overall, November marked another disappointing month for MCD, as the company missed muted global same-store sales estimates.  The U.S. was once again a major source of disappointment, as the company attributed the weak comparable sales to the competitive environment and flat industry traffic trends.  To be clear, this suggests that MCD is losing market share in the U.S. and, we contend, they have been for a while.

Despite the temporary uptick in two-year trends, our bearish thesis remains in play.  With the street looking for 7% EPS growth in 2014, we continue to believe there is disconnect between investor’s expectations and the company’s fundamentals.  Until we see a legitimate change in company operations or strategy, we fail to see how MCD will be able to hit the street's current 2014 EPS target. 

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