Restaurant company McDonald's Corp MCD has made plenty of headlines over the last two weeks with an appearance by Donald Trump at a restaurant and an E. coli outbreak at restaurants in the Western portion of the United States.
Analysts and investors are bracing for the impact of these items and more when the company reports third-quarter financial results before the market open Tuesday.
McDonald’s Earnings Estimates: Analysts expect McDonald's to report third-quarter revenue of $6.82 billion, up from $6.69 billion in last year's third quarter, according to data from Benzinga Pro.
The company missed revenue estimates from analysts in two of the last three quarters, but has beaten estimates in seven of the last 10 quarters overall.
Analysts expect the company to report earnings per share of $3.20 compared to earnings per share of $3.19 in last year's third quarter. The company missed analyst estimates in the second quarter, but previously beat estimates in nine straight quarters before that.
What McDonald’s Analysts Are Saying: Analysts are still weighing the impact of an E. coli outbreak with 75 reported cases and one fatality in 13 states. The company took the quarter pounder off the menu, but will soon be bringing it back without raw onions in the impacted states.
While the financial impact could take some time to be evaluated, analysts recently stressed that a huge selloff in McDonald's stock might be overdone.
"We will monitor the situation as it's only natural to expect a short-term impact to sales," TD Cowen analyst Andrew Charles said.
The analyst, who has a Hold rating and $300 price target on McDonald's compared the E. coli outbreak to past cases at other restaurant chains.
Every 1% change in U.S. same-store sales could amount to around a 9-cents-per-share earnings impact in future quarters, Charles estimates, listing a "worst-case sales impact" of 37 cents to fourth-quarter earnings per share.
Wedbush analyst Nick Setyan maintained an Outperform rating with a $295 price target on McDonald’s shares.
"MCD well positioned to contain quickly, and any impact likely much more limited than CMG," Setyan said, comparing the E. coli outbreak to a past Chipotle outbreak.
McDonald's franchised, global base has a limited impact on its overall financials, the analyst said.
“MCD has the scale and expertise to respond and contain far more quickly than CMG at the time.”
Stifel analyst Chris O'Cull maintained a Hold rating with a $257 price target on the stock. The analyst said it's hard to estimate the financial impact with more cases likely to be reported.
“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 a past outbreak of E. coli at Chipotle locations, 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 analyst Eric Gonzalez said the E. coli outbreak could "derail" momentum for McDonald's.
The analyst maintained an Overweight rating with a $330 price target on the stock.
The analyst said it’s easy to compare the 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,” he said.
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.
Key Items To Watch: The E. coli outbreak containment and financial impact will be the top item on the mind of analysts and investors when McDonald's reports earnings Tuesday. With the outbreak still relatively new, the company may not be able to provide a best-case and/or worst-case financial impact at this time.
The company announcing that all cases have been reported or the return of the quarter pounder being back on the menus nationwide could be items to watch for that could spark optimism among investors.
An appearance by Trump at a franchised Pennsylvania location drew national attention and prompted McDonald's to issue a statement that it does not endorse candidates. The company could be asked further about the appearance, any impact from the viral event and more during the question-and-answer segment for analysts on the earnings call.
With a foodborne illness outbreak underway, McDonald's may struggle to give too much forward guidance, which could make the stock increasingly volatile on Tuesday and for the rest of the week.
MCD Price Action: McDonald's stock was trading 1.65% ahead of the close to $297.44 ahead of the close Monday versus a 52-week trading range of $243.53 to $317.90. McDonald's stock is up 0.2% year-to-date in 2024, after falling over 5% in the last five trading days.
Read Next:
Photo by ATIKAN PORNCHAIPRASIT on Shutterstock.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
