McDonald's E. coli Outbreak: A Lesson from Chipotle

A Technical Overview

McDonald’s Quarter Pounder hamburgers are being linked to an E. coli outbreak that has sickened nearly 50 people across 10 states, CDC officials said on Tuesday. At least 10 people have been hospitalized. One person has died, and another person developed hemolytic uremic syndrome, a serious condition that can cause kidney failure. Most of the illnesses have so far been reported in Colorado and Nebraska, followed by Utah, Wyoming, Iowa, Kansas, Missouri, Oregon, and Wisconsin.

McDonald’s has so far responded by removing the Quarter Pounder from the restaurants impacted in the area and stopped using fresh slivered onions and quarter pounder beef patties. Shares of McDonald’s plunged as much as 10% before finishing down -6%.

So far, the outbreak looks exactly like what Chipotle experienced back in November 2015 when the initial larger E. coli outbreak sickened 55 people, hospitalizing 21 people across 11 states.

Escherichia coli O26 Infections Linked to Chipotle Mexican Grill Restaurants (Final Update) | November 2015 | E. coli | CDC

During that period from November 2015 to early January 2016, the stock plunged -35% and bottomed out at -42%. Note that no one had died during Chipotle’s outbreak.

Then given the severity of the case in McDonald’s so far, it might be too early to buy the dip. Below are the major supports for the stock that I plan on monitoring for an entry: