Bernstein Still Bullish On Chipotle, Awaiting 'Significant Traffic Driving Initiatives' Following CDC All Clear

• Shares of Chipotle Mexican Grill, Inc. CMG have lost more than 22 percent over the past three months following disappointing earnings and an E. coli outbreak traced back to the company.
• Bernstein's Sara Senatore maintained an Overweight rating and $730 price target on Chipotle's stock.
• The analyst acknowledged that Chipotle's brand has been diminished following the E. coli outbreak, but the company is expected to introduce "significant traffic driving initiatives'" as it passes the E. coli.

In a report published Wednesday, Sara Senatore of Bernstein maintained a bullish stance on Chipotle's stock even though she acknowledged that Chipotle's brand has been "diminished" following the recent E. coli outbreak. However, the analyst noted that once the CDC gives the "all clear," the company should benefit from "significant traffic driving initiatives."

Related Link: Wall Street Mixed On Chipotle: More Educated Customer Base And Food With Integrity Branding Complicates

Senatore said Chipotle is likely to initiate a series of initiatives including an up-tick in "traditional marketing," including social media outreach and direct mail – which may consist of buy-one-get-one free offers and other discounting that have "proven very effective" for the company in the past. Naturally, these initiatives will result in gross margin pressure in the near term, but margin recovery should "materialize over time" as management realizes efficiencies and benefits from improvements in technology and throughput.

Finally, Senatore suggested that Chipotle won't "take price" before 2017. However, for context, the company indicated that a $50 million increase in its costs could be offset by just a one percent increase in price.

Shares remain Outperform rated with an unchanged $730 price target.