McDonald's (MCD, Financial) is experiencing stock pressure following a U.S. E. coli outbreak. Preliminary investigations suggest that the issue may be linked to onions used in their "Quarter Pounder" burgers, supplied by a vendor to three distribution centers.
Baird has downgraded McDonald's rating from "Outperform" to "Neutral." Analyst David Tarantino expressed concerns about increasing risks related to U.S. demand and the global economic environment, despite confidence in McDonald's eventual resolution of the E. coli issue.
On the other hand, JPMorgan maintains a "Buy" rating on McDonald's. Analyst John Ivankoe notes that the current stock price is affected by sentiment rather than long-term brand damage.
Barclays continues to give McDonald's an "Overweight" rating. Analyst Jeffrey Bernstein believes the incident has shaken consumer confidence, leading to short-term stock underperformance. He emphasized the importance of prompt action to contain the outbreak.
TD Cowen analyst Andrew Charles reports that McDonald's has mostly controlled the issue, based on rapid checks with franchisees. While sales may be temporarily impacted, this is expected. Drawing from past food contamination incidents like Chipotle in 2015 and Jack in the Box in 1993, Charles estimates a 0.09 USD impact on earnings per share for every 1% annualized change in U.S. same-store sales. TD Cowen predicts a potential worst-case Q4 earnings decline of 0.37 USD per share.
Morgan Stanley suggests the market may react instinctively to the development. Analyst Brian Harbour believes confining the problem to a vegetable supplier is optimal, as it avoids broader issues with meat supply or restaurant processing, which could be more serious. He downplays any long-term threats to McDonald's business stability or reputation from this incident.
As of the latest update, McDonald's shares have dropped 6.1% in pre-market trading.
