Chipotle Negative News Flow Not Over: Credit Suisse Still Searching For An End

• Shares of Chipotle Mexican Grill, Inc. CMG have dipped 40.17 percent over the past three months, declining to a low of $426.67 on January 6.
• Jason West of Credit Suisse has maintained an Outperform rating on the company, while lowering the price target from $575 to $530.
• The company provided an update regarding its December sales, which included two new health scares, confirming the market’s fears regarding Chipotle Mexican Grill’s 4Q performance.

Analyst Jason West mentioned that the impact of the health scares was “severe,” driving down monthly same store sales 30 percent, while leading to the 4Q same store sales falling 14.6 percent.

“The combination of sales deleverage and additional cost investment on food safety have caused 4Q EPS guidance to be cut ~70c to $2.00-2.20,” West stated.

With the same store sales trend continuing to weaken, the sales trajectory is now weaker than expected moving into January.

According to the Credit Suisse report, “CMG announced its receipt of a Federal Grand Jury Subpoena in connection with a norovirus incident that occurred at a Simi Valley, California restaurant resulting in more than 100 people becoming ill.”

Although the financial impact of the subpoena is difficult to measure accurately, West highlighted the incremental downside risk from this continued negative news.

Chipotle Mexican Grill’s board has authorized the buyback of shares worth an additional $300 million, which is intended to be used in conjunction with the remainder of the existing authorization worth $116 million.

The same store sales estimate for 1Q16 has been lowered to-18.6 percent, from the earlier -16.5 percent, while the 2Q estimate has been marginally lowered from -11.5 percent to -12 percent. The 2016 EPS estimate has been reduced from $12.95 to $12.71.