Most analysts believe the impact of the E. coli outbreak at McDonald's (MCD.US) will be limited.
1min read McDonald's (MCD.US) shares have come under pressure after being implicated in a US E. coli outbreak. The company said initial investigation results suggested that some illnesses may be linked to onions used in its quarter-pound burgers, which were provided by one supplier and served at three distribution centers.
Baird downgraded McDonald's to "neutral" from "outperform." Analyst David Tarantino warned that "while we believe McDonald's will ultimately be able to successfully resolve the E. coli issue, the increased risk associated with the recent demand outlook in the U.S. has us a bit hesitant, while we also see signs of a deteriorating economic backdrop outside the U.S."
Morgan Stanley reiterated its "buy" rating on McDonald's. Analyst John Ivankoe said the current stock price was "driven by emotion/fear, which we don't believe will have a lasting impact on the brand."
Barclays maintained its "overweight" rating on McDonald's. Analyst Jeffrey Bernstein said the stock would underperform in the short term as the outbreak affected consumer confidence. He noted: "For the stock impact, time is of the essence for McDonald's, and the infection needs to be contained and curbed quickly and decisively."
TD Cowen analyst Andrew Charles said the company's rapid checks of franchisees indicated that McDonald's had largely contained the problem. Charles said he expected sales to be affected in the short term, which was normal. Based on the 2015 Chipotle and 1993 Jack in the Box food contamination incidents, Charles and his team estimated that a 1% annualized change in same-store sales would impact earnings per share by 9 cents. TD Cowen expects the worst-case scenario to be a 37 cents decline in fourth-quarter earnings per share.
Morgan Stanley said the market may react subconsciously to the development. "If the issue is indeed limited to one vegetable supplier, we believe this could be the best-case scenario in this situation. This does not mean that there is a problem with the restaurant's processing or beef supply, which could be more widespread and sometimes more severe," analyst Brian Harbour said. "Therefore, while this will cause some disruption to business in the short term, we do not believe it will pose a long-term threat to McDonald's business stability or reputation," he added.
As of writing, McDonald's shares were down 6.1% at the opening.
