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Financial services firm Baird has downgraded its rating on McDonald’s to neutral due to increasing concerns over an E. coli outbreak linked to the chain’s Quarter Pounder hamburgers.
The food safety crisis “poses a significant threat to consumer sentiment,” which is critical for McDonald’s U.S. sales – an essential driver of investor confidence, according to the firm. The Centers for Disease Control and Prevention (CDC) is currently investigating cases in ten states, with 49 reported illnesses, 10 hospitalizations, and one death.
In light of these developments, Baird has lowered its earnings per share (EPS) forecast for Q4 to $2.87, reflecting a 4% decrease, and adjusted its 2025 projection to $12.30, citing weakening U.S. sales.
Despite these near-term headwinds, Baird remains confident in McDonald’s long-term fundamentals. The firm has set a new price target of $290, which reflects current risks. If the impact of the outbreak proves to be minor, McDonald’s could see a rebound in investor sentiment and valuation metrics. However, for now, uncertainty looms over the fast food giant’s immediate outlook, especially with quarterly earnings expected on Oct. 29.
Past incidents, such as Chipotle’s (CMG-2.29%) E. coli outbreak in late 2015, underscore the potential consequences of food safety issuesThe crisis drove comparable sales down -14.6% in Q4 2015, with sales falling even further in 2016 to -20.4%. While Baird acknowledges that McDonald’s situation may be less severe due to its more robust supply chain and the isolated nature of the outbreak, the risks remain.
In a recent video posted to YouTube (GOOGL+1.44%), McDonald’s U.S. president Joe Erlinger stated that “most menu items are not affected” by the outbreak, highlighting that popular options like the Cheeseburger, Big Mac, and McDouble as safe to eat. The company is working with health officials and has temporarily halted the use of fresh slivered onions and quarter pound beef patties used in the Quarter Pounders during the investigation.