Shares of Chipotle Mexican Grill, Inc. (NYSE: CMG) have declined 22.05 percent over the past three months, hitting a low of $536.19 on November 20.
Andrew M. Charles of Cowen and Company has downgraded the rating on the company from Outperform to Market Perform, while lowering the price target from $775 to $515.
The company’s 4Q sales were affected worse than expected by the E. coli outbreak, and Charles anticipates the recovery to likewise take longer than expected.
Analyst Andrew Charles mentioned that apart from the risk of a longer than expected recovery period, “sales slowness in 2015 prior to E. coli issues was never fully resolved and could further pressure the trajectory of the turnaround.”
Preannouncement
Chipotle Mexican Grill has preannounced its November comp sales at a decline of 16 percent, driven by the negative publicity associated with the E. coli outbreak. Charles expects the overall 4Q comps to decline 8–11 percent, meaningfully worse than the low single digit decline investors had been anticipating.
Related Link: Barclays Cuts CMG PT To $540
Although the company is expected to implement a recovery plan soon, Chipotle Mexican Grill has so far been “focused on ensuring E. coli was eliminated from the supply chain, although the CDC investigation to find the source is disturbingly still ongoing,” Charles stated.
According to the Cowen report, the company’s recovery efforts are likely to drive sequential improvement over the next six months in monthly sales. However, given the slower than anticipated sales environment during 2015, the sales issues could be prolonged, as the company works through its recovery plan.
“In addition, there is risk the recovery is choppy, supported by mgmt's decision to rescind guidance for low-single-digit comps in 2016, implying near-term visibility is low as the company works through cleanup efforts,” the report added.
The EPS estimates for 2015, 2016 and 2017 have been lowered from $17.32 to $15.58, $20.65 to $17.15 and $24.75 to $20.60, respectively.
