McDonald's Stock Rises as Analysts See a Chance to Buy

The $170 level has been targeted by McDonald's options traders

May 7, 2018 at 9:16 AM
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McDonald's Corporation (NYSE:MCD) is 1% higher in electronic trading, after Goldman Sachs added the stock to its "conviction buy" list and set a $185 price target, saying the pullback in MCD shares presents a buying opportunity. Citigroup also weighed in bullishly, expecting the fast food company's transition to fresh beef to result in increased sales. The covering analysts also noted the move could hurt rival Wendy's (WEN), which has historically emphasized its use of fresh meat.

The Dow stock has desperately been trying to regain momentum on the charts. Following a 41.4% surge in 2017 -- its second best year ever -- MCD remains lower on a year-to-date basis, though the company reported upbeat earnings a week ago. After recently bouncing from the 320-day moving average, the shares closed Friday at $165.03.

The $170 price point, meanwhile, is turning into a battleground among options traders. The 170 strike is home to heavy call open interest in the May and June series. Most of the positions in both series have been bought to open, according to data from the major options exchanges, but there's also been too much sell-to-open activity to ignore. So while a number of bulls are expecting a breakout above $170 for McDonald's, others are writing the calls in hopes of this level acting as resistance.

Like Goldman and Citigroup, most other covering analysts are bullish on MCD stock. There are 22 brokerage firms tracking the equity, and 16 label it a "strong buy." Moreover, the average 12-month price target stands up at $186.69, representing a roughly 12% premium to current levels and record-high territory.

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