Chipotle's Recovery: Still Too Early To Buy The Stock, Says Canaccord

Chipotle Mexican Grill, Inc. CMG saw its stock trading above $750 per share, but once again, a scandal involving food safety issues pushed the stock below the $400 per share mark for the first time since 2013.

Chipotle's stock has lost more than 17 percent since the start of 2016, 45 percent over the past year and is within striking distance of its 52-week low of $384.77. However, this doesn't mean it is time to buy Chipotle's stock, at least according to analysts at Canaccord Genuity who initiated coverage of the stock with a Hold rating and $424 price target.

According to the analysts, there is simply "too much risk" at current levels, and a Hold recommendation is justified based on: 1) an uncertain recovery in sales following the food safety scandal which produced a food borne illness; 2) Chipotle's margins will trend "significantly below" peak levels due to the food safety scandal, lower sales and inflated labor costs; and 3) Newer built units are now likely to contribute a lower return as the overall brand name has been negatively impacted.

Related Link: Chipotle's E. Coli News Is Scaring These Analysts

Bottom line, the analysts argued that the impact Chipotle has seen following food safety scandals has been "more severe and prolonged than we anticipated" and puts into question if the company will ever recover to its pre-incident AUV (average unit volume) of around $2.5 million.

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