Chipotle Mexican Grill Faces Headwinds Beyond Last Year’s E. Coli Issues, Deutsche Bank Says

Chipotle Mexican Grill (CMG) still faces headwinds beyond its inability to get sales back on track after last year’s E. coli scare, Deutche Bank Analyst Brett Levy said in a note to clients on Wednesday.

The company’s management is taking “significant and positive steps” to right the ship, but third-quarter earnings on Tuesday showed Chipotle has a long way to go, he said in a note on Wednesday. Because of its headwinds in reclaiming customers, Deutsche Bank has a $280 price target on the company and rates it as a sell.

Executives implemented multiple strategies including in-store marketing with its Chiptopia loyalty program, offering free meals to children with the purchase of an adult meal and other types of promotions. The company also implemented corporate spending and capital projects, including reducing unit growth and a refined store prototype, Levy said.

Still, Chipotle reported that same-store sales dropped 22% year-over-year, 300 basis points below the Deutsche Bank’s forecast, and earnings fell short by more than $1. Levy said in the note that the company’s guidance for 2017 might be a bit of a stretch. The bank lowered its earnings estimate for 2017 to $8 from $9.40 a share.

“We are applying a conservative approach to our model, until we see signs of a sustained recovery … until we are unconvinced of how well CMG can execute on its numerous sales, labor, marketing, cost cut and capital plans,” Levy said. The company’s “newly described roadmap does not change our view that this once dominant concept is facing an uphill battle to regain its prior position.”

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