McDonald's stock plunged after CDC report.

McDonald's ( MCD ) stock fell more than 5% in afternoon trading Wednesday after the Centers for Disease Control and Prevention said the company's quarter-pounder burgers contained an E. coli outbreaks

“This is a rapidly ongoing outbreak investigation,” the CDC wrote on its website. “Most of the sick people are reporting eating quarter-pounder hamburgers from McDonald's, and investigators are working quickly to determine which food ingredients are contaminated.”

The company's stock sank as much as 10% in extended trading Tuesday following the news.

The CDC said McDonald's stopped using fresh slivered onions and quarter-pound beef patties in some states after a source of illness was confirmed.

The outbreak has resulted in one death and 10 hospitalizations in 10 states, the agency said.

In an internal memo shared by McDonald's on its website Tuesday evening, Cesar Pina, McDonald's chief supply chain officer for North America, said the company was taking “swift and decisive action” and noted that preliminary results of the investigation “suggest that a subset of the illnesses are associated with the sleeved onions used in the Quarter Pounder. can be linked and sourced by a single supplier serving three distribution centers.”

“As a result, and consistent with our safety protocols, all local restaurants have been instructed to remove this product from their supplies and we have suspended distribution of all slivered onions to the affected areas,” the company said.

McDonald's will temporarily remove the menu item from restaurants in affected regions, including Colorado, Kansas, Utah and Wyoming, as well as Idaho, Iowa, Missouri, Montana, Nebraska, Nevada, New Mexico and Oklahoma. All other menu items are available.

A close-up of a McDonald's Double Quarter Pounder with Cheeseburger, San Ramon, Calif., Aug. 3, 2024. (Smith Collection/Gado/Getty Images) · Smith Collection/Gado via Getty Images

“While the incident appears to be more contained than others we've seen in the industry, an expansion or sustained campaign of investigation that could impact consumer traffic,” BTIG analyst Peter Saleh wrote in a note to clients on Wednesday.

He added that the event could push the ongoing Chicken Big Mac and McRib limited-time offers through the end of the year.

“We believe McDonald's can reduce advertising by supporting them [limited-time offerings] take in the near future, because the message may fall on deaf ears amid widespread news coverage,” he explained. “The company may want to shift its messaging toward quality and away from price to reassure consumers about its food safety.”

“McDonald's traffic was anemic prior to this incident, so any extended negative publicity could make it more difficult to restart sales in this environment.”

Fellow fast-food giant Chipotle ( CMG ) faced a 2015 norovirus outbreak with its own E. Coli went through an outbreak. The company was forced to temporarily close 43 locations in Washington and Oregon.

After the CDC announced the end of the outbreak in February 2016, the company underwent an aggressive overhaul of its food manufacturing processes.

But it took years for the Mexican food chain to regain brand confidence and recover its stock value from the crisis. Shares are up more than 500% since 2016.

In his note, Saleh, who maintained his neutral rating on McDonald's, said, “It is premature to start drawing comparisons to the Chipotle precedent that has scarred investors' memories.”

“This event was driven by repeated outbreaks and continued news coverage across the country, and other quick-service chains have had local E. coli outbreaks in recent years with almost no apparent sales impact,” he explained. “We are in wait and evaluate mode for now.”

Jefferies analyst Andy Barish agreed, adding in a separate note that it is “difficult to assess risk in the near term, but Chipotle is not a clear read in our view.”

“The problem/source at MCD was quickly identified and importantly isolated whereas CMG had little visibility in the early days of the outbreak, followed by multiple store closures which is not the case for MCD at this point,” Barish said, maintaining his buy rating on the stock.

“However, it remains too early to tell about the initial consumer response, but we think it may be much less severe in the case of CMG.”

Alexandra Canal A senior reporter at Yahoo Finance. Follow him in X @Ali_Khal, LinkedIn, And email her at alexandra.canal@yahoofinance.com.

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