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The most bullish indicator for Chipotle ahead of earnings

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Chipotle (CMG) will report fourth-quarter earnings Thursday after the closing bell as it continues to recover from a 2015 E. Coli outbreak that tarnished its brand.

While the Mexican fast-casual chain’s stock and sales suffered for much of 2016, signs of a turnaround have emerged ahead of earnings. Last month Chipotle announced that December sales at established stores had jumped nearly 15%. While consumers may have been more likely to eat out in December as they were out and about holiday shopping, Chipotle’s stock still got a $21-per-share bounce from the news.

Andy Swan, co-founder of LikeFolio, which analyzes social data for investors, predicted in December Chipotle could be “in the midst of a major turnaround.” Ahead of earnings Thursday, Swan stands by his optimism about Chipotle.

“The most bullish indicator is the way people are talking about Chipotle as positive as it’s been since 2014,” Swan told Yahoo Finance. “Chipotle can fully recover this year because their health scare is behind us. The American consumer is pretty forgiving once mistakes have been remedied.”

Chipotle released its preliminary fourth-quarter earnings on Jan. 10. While it posted strong December sales, overall same-store sales in the fourth quarter fell 4.8%. Moreover, Swan’s social data suggests Chipotle might not have fared as well in January as it did in December.

“There was a drop-off in consumer sentiments for January,” Swan said. “This is possibly because of the holiday shopping traffic in December when consumers were more likely to eat out.”

Chipotle’s troubles began in late 2015, when an E. Coli outbreak at dozens of its restaurants sickened 55 people in 11 states. The outlook for the fast-casual restaurant became bleaker after a second outbreak infected five more people, and after 80 Boston College students got sick from eating at a single Chipotle.

The bad PR has had a sustained negative effect on both the company’s stock and sales. Chipotle’s same-store sales plummeted nearly 22% in the third quarter of 2016, and the stock dropped nearly 25% between December 2016 and December 2017.

By Feb. 2, however, the stock was down just 8.73% from the same time the prior year. If Swan’s prediction is correct, Chipotle should continue to rebound.

See also:

What a 20% tariff could mean for Chipotle’s menu

Why we predicted the Chipotle turnaround

How Chipotle can turn things around in 2017