Chipotle's E. Coli News Is Scaring These Analysts
- The Centers for Disease Control announced six new cases of E. coli linked to Chipotle Mexican Grill, Inc. (NYSE: CMG) restaurants in California, Ohio, New York, and Minnesota.
- Chipotle's stock declined Monday morning, hitting a new 52-week low of $532.03 before rebounding and trading higher by 5 percent on the day.
- Wall Street analysts expressed concern over the new developments as around 35 percent of Chipotle's stores are spread across the four states.
Shares of Chipotle Mexican Grill lost over $70 per share on Friday after the Centers for Disease Control (CDC) announced six new cases of E. coli linked to Chipotle restaurants.
The CDC issued a statement on Friday, noting that there is evidence to suggest that a "common meal item or ingredient served at Chipotle Mexican Grill restaurants in several states is a likely source of this outbreak."
Chipotle's investors have been on edge the past few weeks following a poor earnings print, followed by an announcement that the company has voluntarily closed 43 restaurants (that have since been reopened) in the Seattle and Portland region following an E. coli outbreak in the region.
Shares of Chipotle sank to $532.03 on Monday, marking a new 52-week low. However, investors and traders entered the stock and pushed shares higher by more than 5 percent, despite cautious commentary from Wall Street analysts.
Bank Of America: Downgrading To Underperform From Buy
Joseph Buckley of Bank of America downgraded shares of Chipotle to Underperform from Buy with a price target slashed to $470 from a previous $750.
According to Buckley, his revised price target reflects a 25x multiple to his revised 2016 earnings per share estimate ($18.75 from a previous $20.60). The analyst noted that a 25x multiple is in-line with prior times "uncertainty" for the company, and that at current times there is a "high level" of uncertainty around the stock.
Buckley said the four new states named by the CDC represents markets that are "far more significant" for the company and also suggests that issues are geographically widespread and national.
Buckley also pointed out that Chipotle faces a fourth-quarter sales challenge from "tough'" comps and what the company already described as a "choppy" October. As such, the analyst is estimating Chipotle's comps for the quarter will be down about 10 percent.
Nevertheless, Buckley stated that the food safety issue is unlikely to be a long-term negative for the company, but the short-term impact could damage the company's "Food with Integrity" brand and image.
Sterne Agee CRT: Downgrading To Neutral From Buy
Lynne Collier of Sterne Agee CRT downgraded shares of Chipotle to Neutral from Buy with an unchanged $766 price target.
According to Collier, the new E. coli outbreaks "appear to be aftershocks" from the original incident and aren't new cases. However, the news "clearly impacts" Chipotle in the near-term, especially from the consumer point of view given the "onslaught of recent publicity."
Collier said Chipotle could see its sales affected for six to 12 months, especially in the Pacific Northwest. Nevertheless, the analyst suggested that the news won't negatively impact the company's image over the long term.
BMO: Increases Probability Of Traffic Decline
Andrew Strelzik of BMO Capital Markets commented in a note that Chipotle may need to close its stores in the four states where an outbreak was observed. Accordingly, this creates risk that the company will see traffic declines not only in the fourth quarter, as previously believed, but also in the first quarter 2016.
Strelzik said near-term uncertainties remain in terms of additional E. coli cases being announced, along with the total number of stores that could be impacted and the potential timeline of a comp recovery. However, the analyst added that any impact to same-store sales will be "temporary" and under a worst case scenario, shares of Chipotle could trade to $475 per share.
Strelzik also pointed out that the new E. coli cases "do not represent a second outbreak," rather it is just additional cases and the company may not need to close stores in the new four states.
Shares remain Outperform rated with a price target lowered to $730 from a previous $767 given a 5 percent reduction in the company's 2016 earnings per share estimate ($20.29 from a previous $21.25) and an unchanged multiple of 36x 2016 EPS.
Latest Ratings for CMG
|Oct 2016||RBC Capital||Maintains||Outperform|
|Oct 2016||Raymond James||Downgrades||Market Perform||Underperform|
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