Fast-food chain McDonald’s (MCD) is scheduled to announce its third-quarter earnings on Tuesday, October 29. MCD shares have declined about 7% since the announcement of the E. coli outbreak. While analysts expect a modest rise in the company’s Q3 earnings, investors’ focus is expected to be on management’s commentary on the financial impact of the outbreak.
Analysts Have Subdued Expectations from MCD’s Q3 Results
McDonald’s missed analysts’ earnings expectations for the first two quarters of 2024. In fact, the company’s Q2 EPS (earnings per share) declined over 6% to $2.97, while revenue remained almost flat year-over-year at $6.49 billion. The company blamed the lackluster performance on the impact of macro pressures on consumer spending, mainly among lower-income households.
Coming to Q3, Wall Street expects MCD’s adjusted EPS to increase by only 0.6% year-over-year to $3.21. Analysts expect revenue to rise 1.9% to $6.69 billion.
Sentiment on MCD Stock
Ahead of the results, several analysts have expressed concerns about the impact of the E. coli outbreak on McDonald’s near-term performance. On Friday, the company said that the outbreak was likely related to the onions sourced from a Colorado facility operated by Taylor Farms. Peers Burger King and Yum Brands (YUM) have also pulled onions from select restaurants.
As per the update on Sunday, McDonald’s and food-safety officials ruled out the role of beef in the Quarter Pounders as the source of the E. coli outbreak.
Last week, Baird analyst David Tarantino downgraded McDonald’s stock to Hold from Buy and slashed the price target to $290 from $320, reflecting worries over the impact of the E. coli outbreak at the company’s restaurants in several U.S. states. He sees this incident as a major headwind for MCD’s U.S. comparable sales.
Moreover, Tarantino also noted the challenging macroeconomic backdrop that could weigh on the company’s international business. Overall, the analyst’s downgrade reflects the potential effect of near-term risks on the company’s performance. Accordingly, he lowered his Q4 EPS forecast to $2.87, indicating a 4% decline.
Likewise, BTIG analyst Peter Saleh is cautious about the E. coli outbreak and reiterated a Hold rating on MCD stock. He contended that while the situation seems to be more contained than the previous outbreaks seen in the industry, an expansion of the ongoing investigation or continued negative publicity could impact consumer traffic at MCD’s restaurants. Saleh said that he is currently in a “wait and assess mode.”
Options Trades Anticipate a 4% Move
TipRanks’ Options tool offers a quick way to gauge what options traders anticipate from the stock following its earnings report. The expected earnings move is calculated using the at-the-money straddle of the options set to expire closest to the announcement. While this may sound complex, the tool handles the calculations for you.
Currently, it indicates that options traders are predicting about a 4% swing in either direction.
Is McDonald’s Stock a Buy?
With 17 Buys and 11 Holds, MCD stock has a Moderate Buy consensus rating on TipRanks. The average MCD stock price target of $314.58 implies 7.5% upside potential. Shares have risen about 13% over the past year.
