Analyst says sell Chipotle amid ‘depressed’ brand perceptions, more competition
Shares of Chipotle Mexican Grill (CMG) dropped in Thursday’s trading after a UBS analyst said to sell the stock, telling investors that brand perceptions “remain depressed” while competition is unlikely to ease this year.
SELL CHIPOTLE
UBS analyst Dennis #Geiger downgraded Chipotle to Sell from Neutral, saying he is “concerned” about deteriorating online customer review trends and possible implications for the trajectory of sales.
The analyst, who cut his price target to $290 from $345, noted that online review trends have continued to trend downward and have dropped below pre-food safety crisis lows.
He contended that “Despite aggressive efforts to improve brand perceptions through a new national advertising campaign and the launch of new products including queso recently, customer review scores have not shown any signs of improvement.”
Additionally, Geiger told clients that in addition to “depressed” brand perceptions, competition is unlikely to ease in 2018 and said Chipotle’s unit development expectations could be “ambitious.”
His analysis of more than 230,000 Chipotle reviews found that food safety, combined with rising competition, has likely weighed on Chipotle’s efforts to regain customers.
“The increasing penetration of fast casual brands and traditional quick service restaurants has likely weighed on Chipotle’s efforts to regain lost customers. In the aftermath of the Chipotle food safety incidents, our survey analysis indicated ‘like other QSR better’ as the second most cited reason for eating less at Chipotle,” Geiger said.
WHAT’S NOTABLE
Chipotle has faced several foodborne illness outbreaks since 2015. As recently as December 2017, public health officials in Los Angeles investigated a possible foodborne illness outbreak at a local Chipotle restaurant.
Chipotle confirmed that it was aware of the reports tied to its Pico Boulevard location, but said it had not heard from any customers directly. “As a precautionary measure, we have implemented heightened sanitization measures at this restaurant, which we do as a matter of policy if ever we receive reports of illness — even if they are not substantiated,” Chipotle spokesman Chris Arnold said at the time.
The company’s executive ranks have also been in turmoil, with the company searching for a new chief executive officer.
When a new CEO is appointed, current CEO and founder Steve Ells said he will focus primarily on innovation. In December, an analyst at Bernstein called Chipotle a “reasonably” attractive takeover target.
PRICE ACTION
In Thursday morning trading, shares of Chipotle Mexican Grill are down 4.3% to $310.92.
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