Chipotle Mexican Grill, Inc. (CMG) Revamped Long-Term Strategy Not Enough to Offset Near-Term Norovirus Impact

BTIG analyst Peter Saleh is not budging from the sidelines on Chipotle Mexican Grill, Inc. (NYSE:CMG) after hosting a meeting with Head of Investor Relations and Treasury Mark Alexee. Though Saleh discussed with Alexee about the burrito chain’s plan to revamp strategy, he points to a looming ricochet impact from Virginia’s food safety incident with the norovirus coupled with sluggish sales trends as cruxes of his cautious standing.

Finding the management meeting shows all the more “urgency for change” at stake, the analyst reiterates a Neutral rating on shares of CMG without listing a price target. (To watch Saleh’s track record, click here)

“Historically, food safety incidents typically see half of the lost sales recovered in a few weeks and the remainder over the next year; this suggests the lasting impact from this incident could be 250-300 bps,” fears the analyst, noting that one positive takeaway is menu pricing, with the CMG team intending “tranches” of price boosts throughout the forthcoming quarters, with the next to hit as early as the close of the third quarter or start of the fourth quarter of this year. Additionally, Chipotle is evaluating new menu items with the hopes of triggering a bevy of sales, paying special attention to Queso.

Ultimately, Saleh concludes apprehensive on Chipotle, underscoring, “We came away from the meeting with the sense that management is rethinking the company’s approach to many aspects of its strategy and operations and aggressively pursuing sales drivers that they previously shunned as being un-Chipotle including menu innovation and TV advertising. While we recognize the long-term merits of this change in philosophy, we do not believe any of these changes will be enough to offset the near-term impact from last month’s norovirus incident. We also remain concerned about the pace of sales trends and their susceptibility to another incident given how much media attention the concept receives. We remain on the sidelines until we have greater confidence in sales trends and the initiatives mentioned above take hold.”

TipRanks analytics demonstrate CMG as a Hold. Based on 27 analysts polled by TipRanks in the last 3 months, 6 rate a Buy on Chipotle stock, 17 maintain a Hold, while 4 issue a Sell on the stock. The 12-month average price target stands at $413.19, marking a nearly 27% upside from where the stock is currently trading.

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