CDC 'All Clear' On Chipotle Imminent; This Analyst Is Upgrading Stock To Buy

• Having declined steadily for a month, Chipotle Mexican Grill, Inc. CMG shares are down 24 percent since December 14.
• CLSA’s Diane Geissler upgraded the rating for the company from Outperform to Buy, while raising the price target from $506 to $536.
• With an “all clear” on E. coli seemingly imminent, the current share price offers a buying opportunity, Geissler stated.

According to management’s meetings with the CDC last week, the decision to declare an “all clear” on E. coli is imminent, depending primarily on the “last meal date.” Although there is no certainty, management expressed confidence in November’s E. coli cases being the extent of the outbreak.

Related Link: Credit Suisse Says Be Patient In Chipotle; Maintains Outperform, $530 Target

Analyst Diane Geissler commented, “This should set the stage for the marketing campaign,” while adding that Chipotle plans to launch several major marketing campaigns from the second week of February. She further said, “It’s also important to note that the company has no plans to slow down unit growth.”

Chipotle is also working on rebuilding trust in its brand and removing the risk of future food-borne illness. When the company had first announced these plans, the market seemed to have overestimated the cost of their implementation, with the bear case suggesting a 700bps dip in restaurant margins to around 20 percent, Geissler mentioned.

Chipotle has now projected the food safety cost at a 100-200bps impact, which is “clearly less apocalyptic,” the analyst wrote. The FY17 store margin estimate has been raised from 24 percent to 25 percent.

Geissler added, “While we appreciate uncertainty remains (and we expect continued volatility in the shares), we think the current stock price offers an attractive entry point.”