An E. Coli outbreak at multiple McDonald's Corporation MCD restaurants is likely to have a minimal impact on the company's stock, analysts say after Tuesday's after-hours movement.
So far, the outbreak led to 49 cases across 10 states with 10 hospitalizations and one death, according to the Centers for Disease Control.
Most of the people who grew ill are from Colorado (26) or Nebraska (9)
The McDonald's Analysts
- TD Cowen analyst Andrew Charles maintained a Hold rating on McDonald's with a $300 price target.
- Wedbush analyst Nick Setyan maintained an Outperform rating with a $295 price target.
- Stifel analyst Chris O'Cull maintained a Hold rating with a $257 price target.
- KeyBanc analyst Eric Gonzalez maintained an Overweight rating with a $330 price target.
TD Cowen: The E. coli outbreak is largely contained in the West and Midwest states.
"We will monitor the situation as it's only natural to expect a short-term impact to sales," Charles said in a new investor note.
The analyst uses past cases of E. coli outbreaks for restaurant companies Chipotle Mexican Grill CMG and Jack In The Box JACK and estimates that every 1% change in U.S. same-store sales could be around a 9 cents earnings per share impact.
Charles lists a "worst-case sales impact" of 37 cents to fourth-quarter earnings per share.
Wedbush: Setyan expects a limited impact from the E. coli outbreak and thinks comparisons to Chipotle are misplaced.
"MCD well positioned to contain quickly, and any impact likely much more limited than CMG," Setyan said.
With the Quarter Pounder removed from impacted states, the full extent of cases could become clear in two weeks, the analyst added.
Compared to Chipotle's past outbreak, the analyst highlights McDonald's franchised, global base having a limited impact on its overall financials.
"MCD has the scale and expertise to respond and contain far more quickly than CMG at the time."
Stifel: With more cases likely to come in the next two weeks, O'Cull said it's hard to estimate the financial impact on McDonald's.
"Fortunately, McDonald's has regional suppliers, so it quickly pulled certain items at risk, likely limiting the impact," O'Cull said.
The analyst used an example of an outbreak of E. coli at Chipotle locations previously, which led to five quarters of negative same store sales growth. O'Cull said Wendy's managed an E. coli outbreak in 2022 "much better" and most investors don't remember the outbreak.
Wendy's saw a minimal impact on traffic. Like McDonald’s, it removed the sources and the menu items in stores, O'Cull added.
KeyBanc: The E. coli outbreak could "derail" momentum for McDonald's, Gonzalez said in a new investor note.
Like other analysts, Gonzalez recalls the outbreak Chipotle had in 2015. He cautions that the fast-casual chain had E. coli, salmonella and norovirus cases during that rough time for the company.
Gonzalez said Chipotle saw its name in the news for many months. The bad press took a huge toll on the brand as customers dined elsewhere over concerns of multiple items.
"This was catastrophic for a chain that was known for serving ‘food with integrity' and whose customer base was said to be ‘fanatical' in its love for the brand."
The analyst said it's easy to compare the current McDonald's outbreak to Chipotle and other past restaurant outbreaks. But, to assume that it will face a similar outcome “might be too extreme of a bear case."
About 30% of McDonald's stores are located in the U.S. That, along with its 95% franchise model, could insulate the company from a severe financial impact, Gonzalez adds.
MCD Price Action: McDonald's stock is down 5% to $298.97 on Wednesday, erasing some of the losses in the after-hours trading session on Tuesday. McDonald's stock is up 0.6% year-to-date in 2024 and has traded between $243.53 and $317.90 over the last 52 weeks.
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