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McDonald's is in a leadership crisis, but investors are sticking with the stock

Brian Sozzi

A lot of well-paid McDonald’s executives have exited the Golden Arches in recent weeks. But despite what some on Wall Street speculate is a short-term leadership crisis at the restaurant beast, they are sticking with the stock.

Veteran investors Yahoo Finance have spoken with since the firing of now former McDonald’s CEO Steve Easterbrook this week continue to view McDonald’s (MCD) favorably for its dividend (strong 61% payout ratio, per Yahoo Finance premium data), relatively recession proof business model and investments to modernize the chain dining experience. Many investors have also taken heart in McDonald’s boasting executives with long-time knowledge in the restaurant industry and at the company.

“We own McDonald’s, we are holding it. I don’t believe we are adding to the position at these levels. It has been a great stock. It’s a mini leadership crisis, but I think they have such a deep bench at the management level that shouldn’t impact anything,” Bruderman Asset Management Vice chairman and Chief markets strategist Oliver Pursche said on Yahoo Finance’s The First Trade.

Pursche says McDonald’s is a top 20 holding of his firm, which manages more than $1 billion.

“Also keep in mind that McDonald’s is a franchised business and the franchisees will keep on selling McDonald’s burgers,” he says. “We have confidence [in the new CEO].”

Chris Kempczinski speaks during a news conference in New York City, NY, U.S. November 17, 2016. REUTERS/Shannon Stapleton
McDonald's incoming U.S. President Chris Kempczinski speaks during a news conference in New York City, NY, U.S. November 17, 2016. REUTERS/Shannon Stapleton

McDonald’s stock has mostly recovered the losses this week off the surprising ouster of Easterbrook.

All of this isn’t to say McDonald’s top executive ranks won’t look way different in 2020 and that sales and profits won’t get hit as new teams seek to gel.

McDonald’s announced Sunday evening that Chris Kempczinski has been appointed permanent CEO and has gained a seat on McDonald’s board of directors.

Easterbrook was removed due to “poor judgment involving a recent consensual relationship with an employee.”

McDonald’s has declined — or ignored — several requests by Yahoo Finance to make Kempczinski available for an interview.

Following this news, McDonald’s Chief People Officer David Fairhurst abruptly left the company on Monday. Former President Barack Obama aide turn McDonald’s chief communications officer David Gibbs departed in October after joining in that capacity in 2015. And popular McDonald’s chef Mike Haracz left in August after a four-year stint.

“This is McDonald’s in crisis,” long-time restaurant analyst Howard Penney of Hedgeye Risk Management told Yahoo Finance in the wake of Kempczinski’s appointment. Penney says McDonald’s has long been known for its succession planning, but the appointment of Kempczinski doesn’t fit the bill of a well thought out decision.

Time will tell on that. But in the meantime, McDonald’s has a dividend...and investors appear to be OK with just being paid as Kempczinski gets his CEO sea legs under him.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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