Deutsche Bank Downgrades Chipotle, Says Questionable Recovery Is Already Priced In

Deutsche Bank’s Karen Short downgraded the rating for Chipotle Mexican Grill, Inc. CMG from Hold to Sell, while maintaining the price target at $400. He mentioned that the share price already seems to price in Chipotle's recovery, which continues to be “questionable.”

Analyst Karen Short said that little had changed at Chipotle over the past few months, while shares continued to head north. Meanwhile, there is lack of clarity around the type and timing of recovery.

“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.,” Short wrote.

Chipotle’s SSS trends had already been showing signs of weakness before the outbreaks, partly due to “menu fatigue,” which comes from a lack of new introductions, and rising pricing. Although there is no evidence of any new incidences, there is concern surrounding whether or not Chipotle would be able to withstand another outbreak, the analyst stated.

Short also expressed concerned regarding “the potential permanent loss of customers (from changes in brand perception or increased competition) as a result of these issues.” He added that there was lack of clarity related to how long there would be weak sales, infrastructure investments and margin pressure throughout Chipotle’s recovery phase.