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

• Chipotle Mexican Grill, Inc. CMG shares have dipped 40.04 percent over the past three months, to a low of $404.26 on January 12.
• Jason West of Credit Suisse has maintained an Outperform rating and price target of $530 on the company.
• Although the “all clear” from the CDC is expected soon, West says that this story needs patience because it would take time for customers and investors to also give the “all clear” for company.

According to the Credit Suisse report, the company’s presentation on January 13 revealed that management was focused on a recovery plan, with 2016 expected to be an investment year for Chipotle Mexican Grill.

Analyst Jason West said that one of the key positives from the presentations was that the company intends to launch a new marketing campaign in mid-February in an attempt to begin repairing the damage to the brand and the traffic.

“We came away more confident in our 2016 SSS outlook, though visibility remains low. The program will include a direct mail component and higher-than-normal ad spend,” West mentioned.

Another positive was that management expressed confidence the additional food safety headlines appearing in future was unlikely and that the CDC would end its current E. coli investigation “relatively soon.”

“No new E. coli cases have emerged since late-Nov., and CMG indicated that typically these types of CDC investigations would be wrapped up by now,” the report explained.

In addition, management expressed confidence that the company’s economic model would recover fully. Chipotle Mexican Grill expects to be able to eventually recover the costs of higher food safety through operational efficiency and possibly pricing, “targeting a return to peak margins by perhaps 2017- 18.”