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Dow Jones News: McDonald's Dumps Its CEO; Verizon's Pricing Power Questioned

By Timothy Green - Nov 4, 2019 at 1:25PM

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A leadership change at McDonald's surprised investors, and an analyst sees potential pricing pressure ahead for Verizon.

The Dow Jones Industrial Average ( ^DJI -0.17% ) carved out a new all-time high on Monday, buoyed by optimism that the first phase of a U.S.-China trade deal would be signed this month. The Dow was up 0.35% at 12:40 p.m. EST.

Bad news for McDonald's ( MCD 0.21% ) and Verizon ( VZ 1.36% ) prevented both blue chip stocks from participating in the rally. Shares of McDonald's slumped after the CEO was unexpectedly fired, and Verizon stock was lower after an analyst questioned the company's pricing power.

McDonald's fires its CEO

Bad news keeps piling up for fast-food giant McDonald's. The stock has been dropping ever since the company reported somewhat disappointing third-quarter results last month. That decline was extended on Monday after a surprise leadership change was announced over the weekend. Shares of McDonald's were 3% lower on Monday, and they're now down about 15% since peaking in August.

A McDonald's restaurant

Image source: McDonald's.https://news.mcdonalds.com/static-files/60243953-6835-495b-afc9-e97f5a67441f

Steve Easterbrook, who started as CEO in 2015, has "separated from the company" after the board of directors discovered a consensual relationship between Easterbrook and an employee. Easterbrook "violated company policy and demonstrated poor judgment," reads the company's statement.

Effective immediately, Chris Kempczinski, previously president of McDonald's USA, will take over as president and CEO. Kempczinski has also been elected to the board of directors.

McDonald's strategy under Easterbrook has largely been a success. Thousands of restaurants have been remodeled in the U.S., helping to drive customer visits, and delivery is expected to account for $4 billion of global systemwide sales this year. Comparable sales have been growing globally, with a 5.9% increase in the third quarter. The stock has also performed well, up nearly 60% since the beginning of 2016.

While the CEO drama introduces some uncertainty, it appears unlikely that Easterbrook's departure will derail the company's strategy.

Pricing pressure concerns hit Verizon

Following the launch of new wireless plans from rival AT&T, an analyst at Nomura sees trouble ahead for Verizon. Nomura is concerned that Verizon doesn't have much pricing power, given the increasingly competitive environment. The company's long-term ability to raise prices for 5G wireless plans was also thrown into question. This pessimism helped push Verizon stock down 0.7%.

AT&T announced a new set of unlimited wireless plans on Oct. 30, ranging from $35 per month to $50 per month. The most expensive plan includes HBO. Nomura pointed out that AT&T's new pricing represents a price cut of about $5 per line, and it predicted that T-Mobile would likely respond with price cuts of its own.

Nomura cut its rating on Verizon stock from "buy" to "neutral" and reduced its price target from $67 to $65. The stock traded right around $60 on Monday afternoon.

A price war, even a short one, could certainly put pressure on Verizon's subscriber gains and profits. And as the major carriers gear up to offer 5G wireless to the masses, competition may prevent significant price increases over standard wireless plans.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$249.33 (0.21%) $0.53
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$51.42 (1.36%) $0.69
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$34,580.08 (-0.17%) $-59.71

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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