Chipotle Mexican Grill (CMG) Recovery Already Priced In, Says Deutsche Bank; Rating Cut to 'Sell'

Deutsche Bank downgraded Chipotle Mexican Grill (NYSE: CMG) from Hold to Sell with a price target of $400. Analyst Karen Short said Chipotle's "questionable recovery" is already priced in.

Short explained, "We are downgrading CMG to Sell as we believe little has changed at CMG over the last few months, while shares are now above 12/21/15 levels (last outbreak news). We still question what a recovery will look like (and when it will materialize). While management has been proactive - putting in place new food safety prep and procedures (in its supply chain and unit-level), and new marketing and compensation programs to regain consistency and customer trust, there is tremendous uncertainty on how well they will be received. Given our ongoing concerns and CMG's current share price and valuation, we rate CMG shares Sell with an unchanged $400 PT - 24% below the current price."

The analyst added, "We have been saying for some time that Chipotle’s SSS trends were already showing signs of weakness prior to the outbreaks (due in part to menu fatigue – related to a lack of new introductions and from rising pricing). While there has not been evidence of any new incidences, the question (which cannot be “dimensionalized”) still exists on whether or not CMG could weather another outbreak, especially as management now claims its supply chain and processes are the “safest” in the industry. More importantly however, we remain concerned with the potential permanent loss of customers (from changes in brand perception or increased competition) as a result of these issues. We also still question what the duration of softer sales, infrastructure investments and margin contraction will be for CMG throughout its recovery phase. More recently, additional developments have materialized that we believe call into question when the company can regain its footing including: out of stocks and increased in-store wait times (due to greater product safety scrutiny)."

For an analyst ratings summary and ratings history on Chipotle Mexican Grill click here. For more ratings news on Chipotle Mexican Grill click here.

Shares of Chipotle Mexican Grill closed at $525.90 yesterday.

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