Chipotle’s stock drops after Wedbush analyst turns bearish

Chipotle’s stock drops after Wedbush analyst turns bearish


TUESDAY: During PREMARKET TRADE, following Wedbush Securities turning it BEARISH – stating it to be overly optimistic -Chipotle Mexican Grill Inc.’s stock plunged below 1.3%.

Initially in January 2014, analyst, Nick Setyan had stated the stock to be ‘neutral’ but latest reports have claimed it now to be ‘underperform’. Keeping this in regard, the stock price target is set to be at US$ 400 – 16% lower to Monday’s CLOSING price – the lowest target since April 2013 (US$ 450).

As what Market Watchers have reported, the recent pullback in the stock is no reason in itself to own them, as unit economics may not rebound even if sales do, as per Setyan:

“We model a gradual rebound in traffic through 2016, with upped near-term marketing the lone driver to point to (though the ability to sustain transactions absent couponing remains to be seen).” – in a note to clients

The stock has fallen with 28% over the past year meanwhile causing S&P 500 to drop down with 1.2% over the same time period.However, it appears to have left the worst behind and its business case is still valid.

Chipotle continues to suffer from the E. coli and norovirus cases that emerged last fall. Yet in February, restaurant traffic improved. (Source: “Willingness to eat at Chipotle increasing; sentiment bottomed in Jan – William Blair,” CNBC, March 3, 2016).

Most recently, Boston based Chipotle restaurant was in the news for a norovirus “outbreak.” (Source: “Opinion: The case for buying Chipotle (both the guac and the stock),” MarketWatch, March 23, 2016.)

INSIHGT: Restaurant’s crisis began last year when a handful of its outlets were accused of being the source of an E. coli outbreak. Last February, to stem the crisis, Chipotle gave away free food. This is not its first “free food to win them back” raid. It had a five million free burritos campaign a few months ago, which didn’t work.

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I am an independent trader currency and commodity with about eight years of experience. I love the financial world because it is like one big puzzle and I hope we help each other out to solve the puzzle to help us realize our dreams. I received my BBA in Accounting (With Honors) - from The University of Texas - San Antonio. Achievements: Beta Alpha Psi National Accounting Honors Fraternity member, Leadership Challenge Participant, Dean's List. I have passed the Series 63, 22, Texas Real Estate exam, and the DRI Business Continuity exam.