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Tuesday, April 21, 2015
Connor Campbell - Market Analyst at Spreadex

Stock of the day 21/04/2015 – The Coca-Cola Co/McDonald’s Corp

Each company is trying to adapt to the increasingly changing, and health-conscious, tastes of consumers in both the US of A and worldwide. They will be also be warily eyeing the strength of the dollar, as these most multi of multinational corporations stand to suffer under the current currency headwinds.

Overall, The Coca-Cola Co had an erratic, if marginally gainful, 2014 that saw the company increase from $41.14 at the start of the year to $42.24 by its end. By the end of January 2015 Coca-Cola had risen to $43.79, its highest price since the start of December. However, by the middle of March the stock was trading at $39.92, and it has only managed to recover slightly, with Coca-Cola currently trading at $40.67.

Coca Cola Chart April 2015
(Source: 21/04/2015)

Coca-Cola’s biggest problem lies largely out of its control. The multinational is suffering from a movement away from fizzy drinks in the USA, with sales in the sector falling for their 10th consecutive year in 2014. The company is trying to diversify with acquisitions in the energy drinks sector (Monster Beverage), coffee (Keurig Green Mountain) and even dairy (Fairlife). However, company can only diversify so fast, and 70% of the company’s sales remain linked to fizzy drinks.

With its last earnings release back in February it saw its 8th consecutive quarter of falling revenue, despite managing to beat the forecasts analysts had provided. This time around analysts are expecting 9% growth in organic revenue, a big increase from the 2% seen this time last year; how this translates into actual revenue in the fizzy drinks adverse market, one that comes complete with the worrying strength of the dollar, remains to be seen. Analysts have given The Coca-Cola Co a consensus rating of ‘hold’ with an average target price of $44.49.

If things are bad for Coca-Cola, things are looking a lot worse for McDonald’s Corp. After opening last year at $96.79, a big surge in the first half of the year led to the stock to $103.39 by mid-May; however, things soon took a turn south, and by the end of the year McDonald’s was trading at $93.72. By the end of January 2015 the stock had fallen even further to $88.82; a rally to $100.30 at the start of March looked positive, but McDonald’s has slipped by to a current trading price of $96.16.

Mcdonalds Chart April 2015
(Source: 21/04/2015)

Yet even this market inconsistency doesn’t tell the full story of McDonald’s suffering over the past two years. In both January and February of this year the company saw a big drop in sales, joining the 1% global and 2.2% domestic declines seen in 2014. This has led to a new CEO in March: Steve Easterbrook. Already Easterbrook has been making waves, raising the minimum wage for its non-franchisee employees, as well as rolling out the first test of an all-day breakfast menu, appropriately launched on 4/20.

However, a recent survey of McDonald’s franchisees shows they aren’t happy with the way the company is being run, and the figures reveal why. Analysts are forecasting an 11% decline in year-on-year revenue, from $6.7 billion to $6 billion, alongside a $0.15 drop in earnings per share to $1.06. McDonald’s rating isn’t as bearish as these estimates would suggest, with analysts giving the stock a consensus rating of ‘hold’ with an average target price of $98.38.

Recent posts:
Afternoon Market Comment 21/04/2015
Morning Market Comment 21/04/2015
Evening Market Comment 20/04/2015
UK General Election preview 20/04/2015 - Constituency Special
Afternoon Market Comment 20/04/2015


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