McDonald's Preferred Over Chipotle, But Argus Still Likes The Latter Long Term

Argus analyst John Staszak downgraded Chipotle Mexican Grill, Inc. CMG from Buy to Hold in response to the norovirus outbreak at a location in Sterling, Virginia.

Staszak is the latest in a string of analysts who have downgraded the stock (see Staszak's track record here).

Chipotle shares have dropped over 11 percent since the norovirus story broke early Tuesday, and since Thursday, shares were continuously hitting new 52-week lows.

“We expect the negative publicity following just one outbreak of Norovirus to negatively impact same-store sales, operating margins and the current lofty valuation,” said Staszak in a note.

Argus’ estimates had been based partly on recovering comps, which took a hit back in November 2015 when Chipotle closed 43 restaurants due to customer illness and an E. coli outbreak reported soon after.

Sales following that outbreak dropped by about 20 percent.

Staszak cut his EPS estimates for 2017 and 2018 by $0.90 and $0.50 respectively, but expects the company to recover in the long term. The analyst also highlighted Chipotle’s strong financials.

Eyeing Restaurant Stocks? Pick McDonald’s

For investors looking to go long on restaurant stocks, Staszak recommended avoiding Chipotle for the time being and picking McDonald’s Corporation MCD instead.

Argus has a Buy rating on the world’s biggest burger chain.

Besides not being crushed by health concerns, McDonald’s stock has seen its biggest rally ever this year and pays a $0.94 quarterly dividend.

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