Here We Go Again, Chipotle
Shares of Chipotle Mexican Grill (NYSE: CMG) opened lower on Tuesday on news of a potential food-borne illness outbreak. The chain closed one of its Ohio locations on Monday after a handful of customers reported coming down with symptoms including nausea, vomiting, and fever after eating at the restaurant.
Right now it's an isolated incident, and we still don't know what happened or if it is definitely tied to Chipotle. However, nervous investors have been here before. The stock was rallying in 2015 before the first of the brand-tarnishing food-borne illness outbreaks happened in the fall. The stock is rallying again in 2018, and now Chipotle needs to convince patrons that it's safe to grab a burrito bowl.
Image source: Chipotle Mexican Grill.
Guac you like a hurricane
Tuesday is National Avocado Day. Chipotle is celebrating the unofficial holiday -- as well as cleverly promoting its pre-ordering platform -- by giving folks entering AVOCADO as an offer code free guacamole for online and in-app orders. This could've been a busy day at your local Chipotle, but now the chain has to battle demons that it thought it had already vanquished.
Food can make people sick, but when "food with integrity" is your mantra, any outbreak is going to stir up irony and unrest.
Baird analyst David Tarantino is removing Chipotle from his firm's list of Fresh Pick recommendations as a result of the outbreak. He feels that the stock's short-term risk profile is heightened now that Chipotle is making headlines for all the wrong reasons. Tarantino sees any near-term sales hit as minor -- and he's sticking to his bullish outperform rating and $535 price target -- but he's right to keep his enthusiasm in check until this story plays out.
Chipotle was rocking until Tuesday's slide. Shares hit a fresh 52-week high late last week after the chain came through with another well-received quarter, nearly doubling from their February low. Revenue grew between 7% and 9% for the fourth straight quarter, with earnings blowing analyst profit targets away.
Comps rose 3.3% in the second quarter, and now we'll see if this negative news a third of the way into Q3 weighs on store-level sales. New CEO Brian Niccol has been praised since coming over from Taco Bell in February, but now he faces his first real test of brand polishing. Chipotle seemed to be distancing itself from a rough two-year stretch of mistakes, but now it's back to defending its food safety. This isn't a good reason to dump the stock, but after shares' torrid rebound this year, it's a story that investors will need to watch closely. If the headlines don't go away, it's a fair bet that some of its customers will.
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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
