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Dow Jones Rallies as McDonald's Reports Recovering Sales, and Cisco Stock Is Upgraded

By Timothy Green – Jun 16, 2020 at 12:30PM

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The fast-food chain did much better in the U.S. during May versus April, and an analyst expects Cisco's sales to bottom out soon.

The combination of strong retail sales numbers and a potential breakthrough for treating severe cases of COVID-19 sent the Dow Jones Industrial Average (^DJI -1.54%) higher on Tuesday. While the Dow opened nearly 3% higher, that gain had shrunk to 1.8% by 11:15 a.m. EDT today.

Overall U.S. retail and food services sales jumped 17.7% in May from April, according to data from the Commerce Department, but were down 6.1% compared with May of last year. Nonstore retailers saw a 30.8% surge in sales on a year-over-year basis as consumers shifted to e-commerce. While retail sales haven't yet recovered to pre-pandemic levels, they're improving quickly.

On top of the solid retail sales report, results from a clinical trial found that the inexpensive generic steroid drug dexamethasone reduced death rates by about one-third for people with the most severe cases of COVID-19. While a vaccine will still be required to prevent infections, this drug could lower the death rate substantially.

Rising along with the Dow were shares of McDonald's (MCD -1.07%) and Cisco Systems (CSCO -1.86%). McDonald's reported a big sales improvement for May, while Cisco stock was upgraded by an analyst who's optimistic that the worst will soon be over for the tech giant.

A McDonald's restaurant.

Image source: McDonald's.

McDonald's reports sales improvements

While McDonald's was better equipped to deal with the restrictions put on restaurants due to the pandemic than dine-in chains were, the company has still been hit hard. Total comparable-store sales across its system were down 39% in April from the prior-year period, with a 19.2% decline in the U.S.

The situation improved during May, especially in the U.S. In a filing with the Securities and Exchange Commission, McDonald's reported that total comps were down 20.9% in May. In the U.S., comps were down just 5.1%. Much of that decline was due to weakness during the breakfast hours, not surprising since many people are still working from home.

Globally, about 95% of McDonald's restaurants are now operating in some capacity. Nearly all U.S. locations are offering drive-thru, delivery, and/or takeaway, and more than 1,000 U.S. locations have reopened their dining rooms with reduced seating capacity.

While sales are improving, McDonald's will aim to accelerate the process by investing in marketing. It plans to spend around $200 million on incremental marketing in the U.S. and in international markets where it operates restaurants. This spending is in addition to ongoing contributions to marketing from franchisees.

Depending on the trajectory of the virus, a recovery in breakfast sales in the U.S. may take awhile. But overall, McDonald's has recovered most of its lost sales in the U.S. The stock was up about 0.5% Tuesday morning.

Cisco snags an upgrade

For networking-hardware market leader Cisco, cycles are a part of life. When economic uncertainty rears its ugly head, Cisco's large enterprise and government customers tend to pull back on orders. The company was going through the unpleasant part of a cycle prior to the pandemic, partly due to the uncertainty created by the trade war between the U.S. and China.

The pandemic layered on even more economic uncertainty for Cisco's clients, leading to a steep drop in revenue. Cisco reported an 8% sales decline in the fiscal third quarter, and it guided for a decline between 8.5% and 11.5% in the fiscal fourth quarter.

Bank of America analyst Tal Liani is optimistic that the fourth quarter will be the worst of it for Cisco. BofA upgraded the stock on Tuesday from neutral to buy, and boosted its price target from $48 and $55. Liani expects a cyclical recovery and 5G driving growth after the fourth-quarter trough.

Cisco stock was up about 2.3% by Tuesday morning. Shares are down about 20% from their 52-week high.

Timothy Green owns shares of Cisco Systems. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$234.40 (-1.07%) $-2.54
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
CSCO
$40.57 (-1.86%) $0.77
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$29,227.59 (-1.54%) $-456.15

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