Chipotle Mexican Grill Pulls Back As Analyst Argues Bear Case

Updated on

Last week one analyst painted a sunny picture for Chipotle Mexican Grill in the near term, but today another is arguing that this year could be extremely bad for it. The bull case hangs on the fast casual dining chain recovering its reputation quickly and convincing diners to return, but the bear case suggests that this is much easier said than done.

After trending higher since Jan. 12, Chipotle shares began to slump on Thursday and today fell by as much as 1.93% to $452.30 per share during regular trading hours.

Chipotle Mexican Grill at risk from E. coli outbreaks

In a report dated Jan. 21, Longbow Research analyst Alton Stump asked the question: “How ugly could it get in 2016?” He seems to think that it will take quite a long time for Chipotle Mexican Grill to regain consumers’ trust. In fact, he thinks the E. coli outbreaks that plagued the chain will impact it much more than such a situation would impact other restaurant chains.

The reason is because Chipotle has emphasized the quality of its food to build trust and loyalty among diners, so any problem with the quality could reverberate through the company’s financials for some time. In the long term, Stump expects Chipotle Mexican Grill to recover its standing within the restaurant industry, but for now, he believes the problems will continue and consumers might continue to stay away due to fear of another outbreak.

A bear’s estimates

He maintains his Neutral rating on the company’s stock. His earnings estimate for this year falls in the range of $11.25 to $12.68 per share, putting the midpoint far below the consensus at $12.92. He has also significantly reduced his estimate for the year from $14.29 to $11.57 per share.

He expects marketing expenses associated with trying to regain consumers’ trust will have a negative impact of at least $1.50 per share on earnings this year. He also expects a 7.8% decline in comparable store sales this year, compared to his previous estimate of a 4.5% decline.

Leave a Comment

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!