Wednesday, Goldman Sachs reaffirmed a Neutral rating on McDonald's (NYSE:MCD) with a price target of $325.00. The reiteration follows a recent E.coli outbreak linked to the fast-food giant's Quarter Pounder hamburgers.
According to a report by the Centers for Disease Control and Prevention (CDC) on October 22, there have been 49 cases, including one fatality, with the majority occurring in Colorado and Nebraska. The CDC is actively investigating to pinpoint the exact ingredient causing the illnesses.
McDonald's has proactively pulled quarter-pound patties and slivered onions from its stores in multiple states including Colorado, Kansas, Utah, Wyoming, and parts of Idaho, Iowa, Missouri, Montana, Nebraska, Nevada, New Mexico, and Oklahoma.
These actions come as a response to the Food and Drug Administration's (FDA) updates on the situation. Despite the severity of the outbreak, there have been no reports of McDonald's store closures due to the investigation.
The affected locations in Colorado and Nebraska represent approximately 2% of McDonald's U.S. store base as of October 2024, according to data from Placer. The Food Safety and Inspection Service (FSIS) is also conducting a traceback of hamburger patties distributed in the implicated states to assist in the investigation.
Goldman Sachs' analyst anticipates a limited impact on McDonald's near-term sales from the outbreak. However, the firm expects a negative reaction from investors, noting a 5.8% decline in McDonald's stock price after hours following the outbreak news.
Amid these developments, analyst firms such as Evercore, Raymond James, and BTIG maintained their ratings on McDonald's, while Baird downgraded its rating from Outperform to Neutral due to concerns about potential impacts on U.S. comparable sales and consumer sentiment.
In another significant development, CITIC Ltd divested its 19.23% stake in Fast Food Holdings, which operates McDonald's China and Hong Kong businesses, for $430.3 million. This transaction indicates a shift in the business structure for McDonald's in these markets. Loop Capital Markets maintained a Buy rating on McDonald's shares, citing growth that surpassed expectations in the third quarter.
Analysts from BMO Capital Markets and J.P. Morgan expect the company to recover quickly if no further incidents occur. However, Baird has noted that it would reconsider its stance once there is better visibility on sales outcomes.
As the situation develops, investors and analysts are awaiting further updates.
InvestingPro Insights
Despite the recent E. coli outbreak, McDonald's (NYSE:MCD) continues to demonstrate financial resilience. According to InvestingPro data, the company boasts a substantial market capitalization of $225.74 billion, reflecting its dominant position in the fast-food industry. McDonald's has maintained a strong revenue stream, with $25.76 billion reported in the last twelve months as of Q2 2024, although it experienced a slight quarterly revenue decline of 0.11% in Q2 2024.
InvestingPro Tips highlight McDonald's impressive dividend history, having raised its dividend for 49 consecutive years. This consistent dividend growth, coupled with a current dividend yield of 2.25%, underscores the company's commitment to shareholder returns even in challenging times. Additionally, McDonald's stock has shown robust performance, with a 24.59% price total return over the past three months, suggesting investor confidence despite recent food safety concerns.
For investors seeking a deeper understanding of McDonald's financial health and future prospects, InvestingPro offers 13 additional tips, providing valuable insights to navigate the current situation and assess the company's long-term potential.
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