Yum Stock Rating reduced due to E.coli Outbreak

Analysts today reduced stock rating of Taco Bell’s parent Yum Brands Inc. from “market perform” to "outperform” due to its supposed link to the E.coli outbreak. Almost 62 confirmed cases of E.coli related illnesses have already been reported, according to the Center for Disease Control (CDC).

Shares were lowered by Wachovia Securities Inc. and RBC Capital Markets Corp. yesterday because of the possible impact on Taco Bell’s sales.

"We think there could be a short-term, although potentially significant, negative sales impact at Taco Bell", wrote Jeff Omohundro, an analyst at Wachovia in Richmond.

Kentucky-based Yum, who also owns Pizza Hut and Kentucky Fried Chicken, is focusing its marketing efforts on its international business while trying to control damages from the outbreak.

J.P. Morgan analyst John Ivankoe, meanwhile, is recommending to investors to take profits on Yum shares which are up 27 percent this year. Shares Yum fell more than 2.2 percent on Friday.

On December 6, Taco Bell pulled out green onions from its US and Canada restaurants due to “presumptive” positive results of E.coli O157:H7 contamination.

Taco Bell might also be faced with more lawsuits aside from the lawsuits filed by the 11-year old Tyler Vormittag and another Pennsylvanian man after being hospitalized due to illnesses related to E.coli infection. These lawsuits could cost the company millions of dollars in settlements if found guilty of selling contaminated food.

A total 200 potential of E.coli case was also reported, most from New Jersey and New York locations, and are still expected to rise.

Escherichia coli is known to release a deadly toxin that causes the disease. Serious infection of the bacteria can cause kidney failure and hemolytic uremic syndrome.

Infection is through eating contaminated ground beef, bean sprouts and leafy vegetables. Person-to-person transmission is possible if we are not in the habit of washing our hands thoroughly.