Deutsche Bank: Chipotle Sales Expected To Shrink This Quarter, Stock Has More Downside

• Shares of Chipotle Mexican Grill, Inc. CMG have declined 22.31 percent over the past three months, touching a low of $536.19 on November 20.
• Deutsche Bank’s Karen Short has maintained a Hold rating on the company, while lowering the price target from $710 to $525.
• Short expects the dip in sales to continue, with the negative sentiment on the stock also persisting for several quarters.

Analyst Karen Short believes that “it is fair to assume weakened brand sentiment may persist over several quarters and therefore believe consensus estimates do not fully reflect the potential negative impact of these events.”

Chipotle Mexican Grill has traditionally been known as a health and quality conscious brand, which makes it more vulnerable to the impact of an E. coli scare.

“While prior food safety incidents across the traditional QSR and casual dining landscapes may not be entirely comparable for modeling purposes,” Short explained that they illustrated the type of impact the company could face with regard to its brand equity.

Related Link: Panera The Ultimate Winner From Chipotle's E. Coli Disaster?

This could lead to comps being pressured for several quarters, until the consumer perception was restored to being more favorable.

Same-store sales trends had already been slowing, following the impressive trends seen during 2Q13-1Q15. Chipotle Mexican Grill was able to add more than 6 percent to its pricing during this time, which also helps to create challenging sales comps and could have partly been the reason for flattening traffic.

In addition, “despite consumers’ ability to customize CMG’s menu, a limited slate of new product introductions could be driving some “menu fatigue,” which coupled with a growing competitive set may be weighing on near-term results,” the report added.

The EPS estimates for 4Q15 and FY2016 have been lowered from $4.30 to $3.50 and from $20.47 to $18.06, respectively.