Analysts Chasing Price In Chipotle Mexican Grill Lower, Should You?

Chipotle Mexican Grill, Inc. CMG shares are very slightly down at $447.77 in Tuesday's session. It has been tough sledding for the issue since it made its all-time high only three months ago at $757. There have been two contributing factors to the $300 haircut over the past three months.

First of all, momentum investors began to exit the issue after its all-time high was made and ahead of its Q3 earnings report, falling from its all-time high close on October 13 ($750.42) to its $705.63 close on the day the company released its Q3 after the closing bell.

That precipitated a nearly $50 decline to $665.67 the following day, a level it has yet to revisit on a closing basis. Clearly, while momentum investors were still in the issue, they were no heading to the exits much more aggressively.

Foodborne Illnesses Weigh On The Issue

As the issue was attempting to stabilize, a second and more powerful catalyst came to the forefront. Although the E. coli breakouts in July (affected five persons), Norovirus outbreak in August (98 persons), Salmonella outbreak in August (affected 17 Minneapolis stores) influenced the stock, the repeat of an E.coli outbreak truly began to weigh on the issue.

Related Link: Wall Street Is Turning Against Chipotle

At least 22 persons became ill after eating at various locations in Washington and Oregon. After closing at $640.23 on October 30, the company announced the temporary closing of 40 restaurants over the weekend; it instigated a move lower to $608.52 before recovering to end the day at $624. Once again, it should be noted that issue was never to reclaim its October 30 close on an intraday or daily time frame.

As the issue struggled to remain in the $600, the U.S. Centers for Disease Control and Prevention released the facts of their investigation, which covered all of the six states that were affected. Following the negative report, the issue swooned from $611.51 to $536.19.

On this occasion, it was able to mount a rebound, but was never able to reach the $600 handle, let alone its closing on November 19 ($611.51).

Miraculously, the issue was able to maintain its price following another outbreak at Boston College on December 8. It rebounded the following day; its close on the 8th ($542.24) bounced to $575.43 the following day before the downtrend resumed.

Another update from the CDC on December 21 pushed the issue under $500. On Monday, the issue bottomed at $447.50 before recovering slightly to close at $448.81.

Only a few Wall Street firms became skeptical on the issue by downgrading the issue and removing price targets. However, since December 11, there have been three downgrades and one initiation of coverage with a lower price target than its current price – this course of action being taken after $200 had eroded from its share price along with several strong sell-signals (customers becoming ill).

The most recent analyst action came before Tuesday's session, as Credit Suisse maintained its Outperform rating and lowered its price target from $600 to $575.

Despite the price target reduction, the issue has found support ahead of Monday's low ($447.50) at $448.27 and is attempting to remain in the $450 handle.

The issue has fallen over $300 since its all-time high and the flurry of negative attention from the Street that has come within the last month. However, fading the Street may be dangerous, as it shows no technical signs of rallying nor has the ongoing problems at its restaurants have been solved.