McDonald's: Retiring the Tired 'Will It Recover?' Story

McDonald's Corporation (MCD) may not be Shake Shack Inc (SHAK), but that doesn't mean it's cratering

by Adam Warner

Published on May 5, 2015 at 8:55 AM

Here's a headline that's time has come: "McDonald's to Reveal ... Options Are on Table!" Finally! The Chicago Board Options Exchange (CBOE) invented equity options 40 years ago; now there are about 57 or so U.S options and not one of them lists McDonald's Corporation (NYSE:MCD) options? Hard to believe.

OK, my bad. I truncated the Bloomberg header, and channeled my inner Lionel Hutz on the punctuation. It's actually: "McDonald's to Reveal Comeback Recipe: What Options Are on Table?"

"Steve Easterbrook is preparing for his biggest moment as McDonald's Corp.'s new leader on Monday, when he unveils a much-anticipated plan to put the shine back on the Golden Arches.

The company veteran, who was elevated to chief executive officer in March, is confronting the chain's worst sales slump in more than a decade. And the challenges have been particularly pronounced in McDonald's home market. U.S. same-store sales dropped 2.1 percent last year, the biggest decline since at least 2000."

Ah yes, the never-ending "how can McDonald's ever recover" story. It's gone on as long as the Greek debt crisis -- or so it seems.

And as we all (hopefully) know, the burgers just don't compare too well to Shake Shack Inc (NYSE:SHAK), nor does the stock action. Here's how they look side-by-side over the last three months: 

150505agw1

But, alas, that's a pretty unfair comp. McDonald's is a bazillion-revenue, mature company, whereas Shake Shack is a fast-growing recent IPO. Change the comp to the S&P 500 Index (SPX), and McDonald's has basically performed in line with the market.

150505agw2

I wouldn't call that a thrilling chart there. But financial TV gives you the impression that this is a cratering stock, and that's hardly the case.

And MCD options have actually done reasonably well. Both realized vol and implied vol have perked up in 2015. Vol hovered in the mid-teens for the better part of 2014; now, it's more like a low- to mid-20s vol name.

What's more, there was actually an Apple Inc. (NASDAQ:AAPL)-esque bid up into the Monday announcement. The options board priced in a 3.5% move, with nary a McWatch on the horizon.

Look, MCD is not a terribly exciting option, nor is the stock itself so interesting. You can probably sell strangles here and wait them out and/or roll them and do fine. But it's just not the disaster zone they make it sound like, either.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.


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