It has been a tough week, or really a tough couple of years, for Chipotle (CMG). The company has been struggling to regain momentum ever since an E-coli outbreak in 2015 sent shares on a downward spiral.
And just when it looked like Chipotle was rebounding from its E. coli nightmare earlier this year, food safety concerns reemerged —twice. A norovirus outbreak at one of its locations in Virginia was the first big headwind facing the company this summer. Then, a video showing rodents at a Dallas restaurant went viral, leaving Chipotle executives scrambling to contain another PR disaster.
Despite the recent challenges, there is one analyst who says the stock may have finally hit a bottom, and that is Yahoo Finance’s call of the week.
Stephens analyst Will Slabaugh and his team are still cautious on the stock, but thinks it may be time for investors to start taking a “fresh look” at the company. The firm raised its rating for Chipotle to equal weight from underweight and issued a price target of $325, about 9.4% higher than the stock’s closing price on Wednesday.
The upgrade comes after Chipotle shares continued to lose ground this week. The stock dropped to $296.00 a share on Wednesday, its lowest level since January 2013.
So why would now be the time to take another look at the struggling restaurant chain? Stephens noted two catalysts: plans to introduce queso in its restaurants in the fourth quarter, as well as its “call to action” marketing campaigns. He wrote “With the stock reflecting increasing investor concern around the ability of sales and margins to rebound after the recent norovirus and Dallas rodent incident, we believe expectations are now low enough to begin taking a fresh look at shares of CMG.”
Stephens wasn’t the only firm weighing in on Chipotle this week. In a note to clients, Oppenheimer took a more cautious view, writing, “Following a 36% slide since June, CMG’s risk/reward exhibits better balance … but we remain unable to recommend shares.” And Credit Suisse was also wary of the stock, lowering its price target by $15 to $320 a share. Its big concern was higher avocado prices due to a supply shortage in Mexico and a weaker harvest in California. Analysts Jason West and Jordy Winslow wrote that the recent price spike could have “material ramifications for margins and EPS.”
Shares of Chipotle were last trading up 3.2% at $311.43 a share on Friday.
