McDonald's was just gaining back market share before E. coli: Analyst
McDonald's (MCD) has pulled Quarter Pounders off its menus across certain US states in an effort to limit an E. coli outbreak that could be linked to slivered onions and beef patties. How should investors in the fast-food — or quick-service restaurant — industry be viewing this event? Guggenheim Restaurants Equity Research Analyst Gregory Francfort explains to Julie Hyman and Josh Lipton how other chains' operations, like Jack In The Box (JACK) and Wendy's (WEN), have reacted to similar situations in the past. "Every year about $1 trillion dollars is spent at grocery [stores], and about $1 trillion is spent at restaurants. Last year, $53 billion were spent at McDonald's, that is a huge share of the industry. And they have had very few food safety issues over time," Francfort says. "They're able to identify the product, the distributor. A lot of that comes from efforts they've made in the supply chain to try to make it as safe as possible." Guggenheim downgraded McDonald's from Neutral to Buy and slightly cut its price target to $285 per share. Francfort explains: "The E. coli situation was a part of that. But the other piece of it was this stock has had a 24% run since the end of June. And that's part of that's because of an improvement in the US business. But the other thing to realize is the multiples expanded earnings don't move a lot here. And the multiples expanded from under 20 times to 25 times. And so part of it was just taking an opportunity for the stock to catch a breather." Earlier today, BTIG restaurant analyst Peter Saleh told Yahoo Finance that he is finding McDonald's E. coli outbreak to be "more contained and more neutralized" than Chipotle's (CMG) situation from 2015, which also coincided with several norovirus cases. Francfort also weighs in on Starbucks (SBUX) preliminary fourth quarter earnings under new CEO Brian Niccol and Yum! Brands' (YUM) global growth prospects. To watch more expert insights and analysis on the latest market action, check out more Market Domination here. This post was written by Luke Carberry Mogan.
