What Wall Street Analysts Are Saying About McDonald's Link To E. Coli Outbreak

<p>Jens Kalaene / picture alliance via Getty Images</p>

Jens Kalaene / picture alliance via Getty Images

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Key Takeaways

  • McDonald's stock fell Wednesday, a day after the CDC announced it had linked an E. coli outbreak to the chain's Quarter Pounders.

  • However, analysts said they think the impact on the fast-food giant's stock and sales likely will be short-lived.

  • Analysts said McDonald's is better equipped to handle supply-chain shifts than companies that endured other outbreaks, like Chipotle in 2015.



Analysts believe any impact from a recent E. Coli outbreak to McDonald's (MCD) sales and stock price likely will be short-lived.

On Tuesday, the Centers for Disease Control and Prevention (CDC) announced that it had linked the outbreak to the chain's Quarter Pounder burgers. The restaurant chain's stock was down 5% Wednesday afternoon.

JPMorgan analysts said following the CDC announcement that they expect McDonald's supply-chain advantages will allow the fast-food giant to minimize the impact of the suspected contaminated food. The analysts also said that with McDonald's stock lower, they plan to buy shares.

In a statement Tuesday, McDonald's said it believes slivered onions delivered from a single supplier—which provides product to three distribution centers—are likely the issue. It said the company temporarily is removing the Quarter Pounder from menus in four states and parts of eight others "out of an abundance of caution."

Bad Onions From Single Supplier Could Mean 'Relatively Insulated Impact' on Sales

Given that the affected stores represent less than 10% of McDonald's U.S. footprint, Wedbush analysts said the outbreak should have a "relatively insulated impact" without influencing sales across the rest of its global operations.

JPMorgan analysts said the outbreak likely will be much less severe than Chipotle's (CMG) foodborne illness issues that started in 2015 and ultimately sickened more than 1,100 people. Chipotle eventually was fined $25 million by the Food and Drug Administration (FDA).

In the first two quarters following the start of Chipotle's outbreak, same-store sales declined by about 15% and 30%, JPMorgan analysts noted. They said that McDonald's advanced supply chain and improvements in tracing ingredients and diseases should help its sales be less affected.

McDonald's likely will address the outbreak in its earnings report next Tuesday. After today's declines, its shares are up less than 1% on the year.

Read the original article on Investopedia.