Chipotle's Headline Risk Is Back And Legal Risks Remain, Maxim Warns

Chipotle Mexican Grill, Inc. CMG has had quite a year of it as the embattled company struggles to regain customer and investor confidence following a series of wide-spread, national foodborne illnesses.

While E. coli scares appeared to fade for a few weeks, a recent forced closure in the Boston-area credited to four sick employees has once more startled wary investors.

Maxim Group Remains Guarded

According to a recent note by Maxim Group, Chipotle is not out of the bad-news fueled woods just yet.

"We still believe it will be a few quarters before the comp trend returns to break-even," the analysts began. "However, in light of this week's news of a norovirus outbreak near Boston, we caution that double-digit negative comps may continue into 2Q16E (June)."

Related Link: Chipotle Haters Are Coming Back

The firm also highlighted the potential federal criminal probe into Chipotle, stating that combining the potential legal risks with the continued norovirus concerns reaffirms the analysts' sentiment "that near-term earnings visibility remains limited."

Maxim elaborated, "Although we argue that management's more aggressive food safety stance – which we contend is highlighted by the hiring of one of the leading food safety laboratories in the U.S. – may mitigate any unfavorable verdict, we still caution that such a verdict may lead to another bout of negative headline risk, thus limiting any further upside in the share price."

Based upon these risks, Maxim is maintaining its Hold rating and $450 price target on the stock.

"As we still believe that: (1) results for the next several quarters are likely to be choppy; (2) new unit growth is not likely to accelerate as rapidly as management forecasts; and (3) legal risk from the expanded federal grand jury investigation may produce prolonged downside, we are maintaining a forward P/E multiple that is below the 31x average of the past three years."