Chipotle drops on downgrade

Analyst says sell Chipotle amid ‘depressed’ brand perceptions, more competition

Chipotle Mexican Grill spokesman Chris Arnold says the company is aware of a "small number" of illnesses linked to a store in Sterling, Virginia
Chipotle drops on downgrade

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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Alibaba buys a third of Ant Financial 

Alibaba to take 33% equity stake in Ant Financial 

Alibaba to take 33% equity in Ant Financial. Stockwinners.com
Alibaba to take 33% equity in Ant Financial

Alibaba Group (BABA) and Ant Small and Micro Financial Services Group announced that pursuant to 2014 transaction agreements, Alibaba will acquire a 33% equity interest in Ant Financial.

The parties have agreed to certain amendments to their 2014 transaction agreements to facilitate the transaction.

Under the terms of the amended agreements, Alibaba will acquire newly-issued equity from Ant Financial in exchange for certain intellectual property rights owned by Alibaba exclusively related to Ant Financial. There will be no cash impact to Alibaba following completion of the transaction.

Upon closing, the companies will terminate the current profit-sharing arrangement under which Ant Financial pays royalty and technology service fees in an amount equal to 37.5% of its pre-tax profits to Alibaba.

Daniel Zhang, CEO of Alibaba Group, said, “This transaction is a significant step for Alibaba to enhance our long-term strategic relationship with Ant Financial as we continue to pursue our mission to make it easy to do business anywhere.

Importantly, an equity stake in Ant Financial enables Alibaba and our shareholders to participate in the future growth of the financial technology sector, as well as the benefits of user growth and improved customer experience.”

The transaction was reviewed and approved by a committee of non-executive directors, the majority of whom are independent under NYSE rules, the audit committee of Alibaba’s board and the full Alibaba board of directors.

The closing of the transaction is subject to customary conditions. Alibaba will acquire the equity interest in Ant Financial through a Chinese domestic subsidiary.

Morrison & Foerster and King & Wood Mallesons acted as legal advisors, Credit Suisse acted as financial advisor and PricewaterhouseCoopers acted as tax advisor to the Alibaba Independent Committee.

Wachtell, Lipton, Rosen & Katz, Sidley Austin LLP and Fangda Partners acted as legal advisors to Ant Financial.


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This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.