E.coli woes continue for Chipotle Mexican Grill, Inc. CMG. Reportedly, 30 students from Boston College fell ill after eating at one of its restaurants. The company has temporarily closed its restaurant in Boston's Cleveland Circle as officials investigate the matter.
Though there is no confirmation yet that this incident is related to the earlier E.coli outbreaks, investors, nonetheless, remain alarmed. Shares of the fast casual chain tanked over 8% (including the after-hours decline of 6.6%) following the news.
This is the second consecutive 8% fall for the company’s shares in a day’s trade. We note that shares had dropped around 8% on Dec 4. The announcement of a weak fourth quarter outlook in the wake of the impact of the E.coli outbreak on its sales and withdrawal of its 2016 comps outlook, had prompted the previous share fall.
In fact, shares of Chipotle have tanked over 12% since the last month primarily due to the resultant adverse publicity surrounding the E. coli infections.
Price Fall at Chipotle: A Buy Opportunity?
Chipotle’s current per share price of $551.75 is a long way off from its 52-week high level of $758.61. However, if the company takes necessary steps to come out of the current situation, it should ultimately drive the stock higher as Chipotle remains fundamentally strong.
The company has already announced that it is taking stricter measures to provide safer food to its customers. Some recent measures include high-resolution testing of ingredients and providing specialized training to staff to maintain food standards.
Also, on the earnings front, Chipotle has surpassed the Zacks Consensus Estimate in three of the trailing four quarters with an average beat of 2.2%. In the last reported quarter, the company missed estimates on higher costs. However, it delivered 10.6% year-over-year increase as higher revenues on comps growth and sales from new restaurant openings offset costs. The company’s sales initiatives and expansion efforts should further drive top and bottom line growth.
Additionally, brokerage firms expect the company to deliver robust 20% earnings growth (compared with the industry average of 16%) this year despite the current woes.
Having said that, we remain cautious about the Chipotle stock in the near term as the extent of the E.coli scare is yet to be determined.
Zacks Rank and Stocks to Consider
Currently, Chipotle carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the Retail-Restaurant space are Jack in the Box Inc. JACK, BJ's Restaurants, Inc. BJRI and McDonald's Corp. MCD. All these stocks sport a Zacks Rank #1 (Strong Buy).
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