Analyst: Chipotle's Food Safety Issues Are Only Temporary

Chipotle Mexican Grill, Inc. CMG reported its fourth-quarter 2016 EPS at $0.55, missing the consensus and down from the EPS of $2.17 in fourth-quarter 2015.

Argus’ John Staszak maintains a Hold rating on the company.

Food Safety Issues

“Chipotle’s reputation — and share price — have been badly hurt by previous outbreaks of E. coli and norovirus at its restaurants, which affected more than 170 customers,” the analyst mentioned.

Although the company was able to achieve rapid sales growth, while benefiting from profitable unit expansion, Staszak believes that Chipotle Mexican Grill’s reputation for serving “Food with Integrity” was damaged by the food safety issues faced by the company through 2016.

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Temporary Setback

In addition, the stock’s P/E multiple was compressed due to weaker than anticipated performance, and the analyst expects the stock to trade within a narrow range over the next 12 months.

“If management is able to address the company’s current food safety problems, and restore consumer confidence, we would consider returning the shares to our BUY list,” Stazsak said, while adding, “We expect the current food safety issues to be temporary, and look for CMG to achieve strong growth over time.”

The EPS estimate for 2017 has been lowered from $8.50 to $10.40.