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Chipotle Will Face Continued Food Safety Risk, Doctor Warns

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Chipotle Will Face Continued Food Safety Risk, Doctor Warns

Chipotle Mexican Grill, Inc. (NYSE: CMG) is not out of the foodborne illness woods yet, according to BMO Capital Markets.

Andrew Strelzik, BMO analyst, breakfasted with Dr. Randy Worobo, a food safety specialist. During the meal, the analyst and doctor discussed food safety, supply chain issues and, specifically, Chipotle.

"Dr. Worobo provided a cautious perspective on Chipotle that highlighted a level of continued food safety risk and potential incremental cost headwinds," Strelzik began. "The views were Dr. Worobo's only, yet the perspective at the very least continues to build our understanding of key food safety issues Chipotle faces as we continue to consider future risk factors."

Concerns Highlighted

According to the analyst, while Chipotle has publically taken steps to "enhance food safety," which should by definition reduce risk, "the extent of the benefits may be overstated by Chipotle."

Related Link: Chipotle's Headline Risk Is Back And Legal Risks Remain, Maxim Warns

"Dr. Worobo believes the enhanced food safety measures largely improve the company's food safety protocols only to normal industry standards," Strelzik elaborated.

Secondly, the analyst pointed to issues Dr. Worobo had mentioned as areas the fast-casual restaurant could address "to further improve the integrity of its food safety protocols." Those included: permanent store-level employees who oversee the execution of those food safety protocols and broad-spectrum improvements to food preparation.

Finally, the pair emphasized how heavy reliance to local suppliers "creates structurally higher food safety risk […] Structurally higher risk reflects difficulties ensuring food safety protocols across a large number of suppliers given the time and cost investment required."

Valuation, Recommendations

While Dr. Worobo stressed the resilient risks toward Chipotle, the analyst maintains an Outperform rating on the stock, confirming, "[W]e remain confident in Chipotle's same-store sales and EPS recovery."

BMO currently has a target price of $550.00 attached to its Outperform rating.

Chipotle was recently seen down 2.45 percent at $503.10.

Latest Ratings for CMG

DateFirmActionFromTo
May 2021Stephens & Co.UpgradesEqual-WeightOverweight
May 2021UBSUpgradesNeutralBuy
Apr 2021RBC CapitalMaintainsOutperform

View More Analyst Ratings for CMG
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