Citi Still Buying Chipotle, Sees Near $700 Price Possible Long-Term

• Analysts at Citi attended Chipotle Mexican Grill, Inc. CMG’s presentation at ICR Conference 2016 on Wednesday.
• Following the event, analyst Gregory R Badishkanian and his team issued two reports sharing their takeaways.
• The experts reiterated a Buy rating on the shares, setting a $698.00 price target.

In a report issued Wednesday, analysts at Citi reiterated a Buy rating on shares of Chipotle Mexican Grill, accompanied by a $698.00 price target. After attending the company’s presentation at ICR Conference 2016, they shared some takeaways.

Response To The Outbreaks

Since the outbreaks, Chipotle has hired numerous experts and has been working closely with CDC, FDA, and suppliers to come up with a plan to ameliorate food safety.

However, it should be noted that the company’s food safety scores were very high prior to the incident. Consultants believe that what happened was that Chipotle received “a very bad batch of some ingredient and that it got through its supply chain,” Citi’s report explicated.

“CMG is doing a lot more testing now in addition to what it did before. It is creating 'kill' steps in the restaurants' food preparation to kill any bacteria that might make its way through and this should very much limit the possibility of this recurring to near zero.”

Looking Forward

While it is hard to determine the actual costs of the incident, Chipotle’s management believes the company will be able to fully recover at some point in the sales front. However, “there will be an ongoing cost of food safety (won't be less than 100bps or greater than 200bps),” Badishkanian and his team expounded. Consequently, earnings visibility will be tough in 2016.

Aiming at a recovery, the company will not only invest in food safety, but also in above-average marketing – starting in the second week of February. Moreover, the report pointed out, the company will not slow new unit development.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.