Chipotle Mexican Grill, Inc. (NYSE:CMG) stock is starting to recover from the devastating E. coli outbreaks that hit its restaurants last October. Since the Centers for Disease Control and Prevention (CDC) announced early last month that the food outbreak was finally over, CMG stock has risen about 15%.
If you’re kicking yourself for not getting in on Chipotle stock, there should still be more room for the price to run.
At least that’s the verdict from a Piper Jaffray Companies (NYSE:PJC) analyst. Piper’s Nicole Miller Regan is reiterating an “Overweight” rating on CMG stock and is boosting the price target from $479.00 to $590.00 per share. At the stock’s current price, that’s about a 16% upswing. That should whet investors’ appetites.
So what is Nicole Miller Regan’s thesis?
Despite the fact that Chipotle is suffering as of late from customers staying away from its restaurants, Regan believes the underlying fundamentals of the business are still solid and it’s only a matter of time before customers return.
If you recall, in its most recent earnings results, Chipotle reported that same-store sales declined 14.6% in the fourth quarter of 2015, which is the period the outbreak first hit. (Source: “Chipotle Mexican Grill, Inc. Announces Fourth Quarter and Full Year 2015 Results,” Chipotle Mexican Grill, Inc. Investor Relations, last accessed March 1, 2016.) In December alone, same-store sales tumbled 30%. (Source: “SEC Filing, Chipotle Mexican Grill, Inc.,” Securities and Exchange Commission, accessed March 1, 2016.)
Regan added that “human capital” will play a significant role in Chipotle’s comeback, as store-level employees will continue to champion the brand. (Source: “Chipotle’s Unit Economics Means It’s ‘When’ Not ‘If’ Things Improve,” Yahoo! Finance, February 29, 2016.)
Regan is right in her analysis of Chipotle. Before the outbreak, sales were brisk. Chipotle ended fiscal 2014 with sales that grew 26% over the previous year and the company has maintained an annual growth rate of 20% over the last nine years. (Source: “What Is Chipotle Mexican Grill? An in-depth overview of Chipotle Mexican Grill,” Market Realist, December 18, 2014.) There wasn’t too much to find fundamentally wrong with Chipotle.
And Chipotle is taking steps in the right direction to overcome the perception that its food is not safe.
In the first quarter, Chipotle will spend $50.0 million on its promotional and marketing efforts, a number that is the most in its history. Chipotle is confident this tactic will work, as these efforts in the past were successful in driving substantial traffic to restaurants, the company said. (Source: “Chipotle Confident It Will Win Customers Back with New Marketing Blitz,” TheStreet, February 2, 2016.)
The Bottom Line on CMG Stock
It might take some time, but eventually, Chipotle’s customers will return to its restaurants. Before that happens, you might want to take a closer look at CMG stock.