McDonald's E. Coli Outbreak Sends Stock to the Bottom of the Dow
McDonald's stock is slumping Wednesday after the CDC said an E. coli outbreak is linked to the restaurant's Quarter Pounders. Here's what you need to know.
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McDonald's (MCD) is the worst Dow Jones stock Wednesday after the Centers for Disease Control and Prevention (CDC) announced it is investigating an E. coli outbreak linked to the fast-food chain's Quarter Pounder hamburgers.
"This is a fast-moving outbreak investigation," the CDC said, adding that most of those impacted reported eating the restaurant's Quarter Pounders. Investigators are "working quickly" to identify which ingredient is contaminated. "McDonald's has pulled ingredients for these burgers, and they won't be available for sale in some states."
The CDC's food safety alert currently lists 49 cases across 10 states, which have caused 10 hospitalizations and one death, adding that most illnesses have occurred in Colorado and Nebraska. However, the true number of sick people could be much higher, because "many people recover without medical care and are not tested for E. coli," the federal agency said.
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McDonald's is working with investigators to determine what food ingredient is making people sick and has stopped using fresh slivered onions and quarter-pound beef patties in several states in the meantime.
"Across the McDonald's System, serving customers safely in every single restaurant, each and every day, is our top priority and something we'll never compromise on," the company said in a statement. "It is why we are taking swift and decisive action following an E. Coli outbreak in certain states."
Is McDonald's stock a buy, sell or hold?
McDonald's stock has lagged the broader market in 2024, up 8% on a total return basis (price change plus dividends) vs the S&P 500's 24% gain. But Wall Street remains bullish on the blue chip stock.
According to S&P Global Market Intelligence, the average analyst target price for MCD is $315.91, representing implied upside ofmore than 5% to current levels. Additionally, the consensus recommendation is Buy.
Financial services firm Jefferies is one of the more bullish outfits on the consumer discretionary stock with a Buy rating and $345 price target.
"Although we are not discounting the risk to guest perception/food safety concerns, we believe the near-term impact could prove less dire than that of prior outbreaks elsewhere in the industry," says Jefferies analyst Andy Barish."
The analyst adds that he's waiting for additional commentary to see whether near-term estimates will need to be adjusted.
"Longer term, we continue to see opportunities for modest margin expansion, strong free cash flow conversion, healthy balance sheet and total shareholder return, and accelerating unit growth that should continue to support the multiple and stock," he notes.
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