Raymond James Reiterates Market Perform Rating on McDonald's (MCD)
Raymond James analyst Brian Vaccaro reiterated a Market Perform rating on McDonald's (NYSE: MCD).
The analyst comments "After today’s close, the U.S. Centers for Disease Control and Prevention and other federal agencies announced that they are investigating an E. coli outbreak linked to McDonald’s quarter pounders across 10 states (most in CO and NE). MCD shares were down ~10% initially on this news, but recovered a bit to down 7% at the time of this writing (after recently hitting an all-time high). The company posted a message (link here) announcing that it is removing slivered onions from restaurants in select states, and is also temporarily removing the quarter pounder from restaurants in select states. It also noted that all other menu items, including other beef products (Cheeseburger, Hamburger, Big Mac, McDouble and the Double Cheeseburger) are unaffected and available. So far, 49 cases have been identified including 10 hospitalizations and one death (older adult in Colorado), with reported cases beginning in late September and continuing into October (see states and timeline in Exhibit I). While no two situations are alike, we have seen a range of impacts from E. coli outbreaks in the restaurant sector historically. Most recently, an E.coli outbreak at Wendy’s in late 2022 had very little impact to comps (thought to be lettuce, but unconfirmed). Prior to that though, two notable outbreaks had significant sales impacts including 1) Chipotle’s outbreak in late 2015 where comps declined over 20% y/y and took six quarters to stabilize and 2) Jack in the Box’s outbreak in 1993 (related to undercooked meat) which resulted in an initial comp decline of 22% in 2Q93 followed by 9% declines in the following three quarters. As a highly franchised business model with a U.S. segment that comprises ~40%/50% of consolidated revenue/EBIT, McDonald’s EPS is less sensitive to changes in comps (vs. company owned business models). For perspective, we estimate every 1% change in U.S. comp equates to ~$0.10 of annual EPS. Thus, a theoretical 10% U.S. comp decline would equate to ~$1.00 negative EPS impact (or ~8.5% of 2024 EPS). For perspective, Chipotle’s EPS declined from $15.10 in 2014 to $0.77 in 2015. We will continue to closely monitor events as they unfold and hope to get an update on the situation when the company reports 3Q results next week on Wednesday, 10/30."
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Shares of McDonald's closed at $314.69 yesterday.