McDonald’s Stock Price Targets Are Higher

McDonald’s Corp (MCD) stock has seen a surge in analysts’ price targets following its February 11 earnings release. Despite this, the stock has remained relatively flat, presenting an opportunity for short-sellers of out-of-the-money (OTM) MCD puts.

Currently trading at $326.82 on March 16, MCD’s price has not moved significantly from where it was a month ago at $327.62 on February 17. However, analysts believe the stock could be worth at least 9% more, with a target price of $357 per share, based on its strong free cash flow (FCF) and analysts’ price targets.

In a recent article on Barchart, the author highlighted McDonald’s robust FCF and FCF margins, projecting a potential FCF of $8.16 billion. Utilizing a 3.0% FCF yield metric, this implies a market value of $272 billion, translating to a price target of $379.58 per share.

In addition to the author’s analysis, other analysts have also raised their price targets for MCD post-earnings release. Yahoo! Finance now shows an average price target of $344.09, Barchart’s survey price is $346.82, and AnaChart’s survey is $370.43, resulting in an average survey price target of $353.78, up from $350 a month ago. Similarly, a historical dividend yield price target suggests a value of $338.57 per share.

Taking into account these various methodologies, MCD’s price target now stands at $357.31, representing a 9.1% increase from the current price. While the stock has been flat over the past month, the upside potential remains promising.

For investors looking to capitalize on a potential downward drift in MCD’s price, shorting OTM puts with a one-month expiry period could be a viable strategy. For instance, the April 17 expiration period offers a $315.00 strike price put contract with a midpoint premium of $3.01, allowing investors to earn $301 with a one-month yield of almost 1%.

By shorting OTM puts each month, investors can accumulate income if MCD continues to trade sideways or lower. This strategy also provides a lower potential buy-in point and an opportunity to generate income while awaiting an entry point.

In conclusion, MCD appears undervalued at its current price levels, presenting an attractive opportunity for investors to short OTM puts and potentially profit from any downward movement in the stock. It is essential to consider all available information and data before making any investment decisions.