It appears the post-salmonella slump is still in effect for Chipotle. The company hit a four-year low in stock prices, with Deutsche Bank predicting things could get worse for the McDonalds of fresh food.
Deutsche Bank cited the food safety issues from 2015 as the main contributing factor to the slump. Deutsche lowered the chain’s sell rating for stock and said it doesn’t deserve a premium valuation anymore because of the company’s lack of progress in recovering from food safety issues that arose in 2015
“Chipotle has remained under pressure for much of the last two years as investors’ concerns over its fundamentals and share price uncertainty persists,” analyst Brett Levy wrote in a note to clients Tuesday. “Many are still hopeful the company can regain its lost lustre, but we believe expectations assume lofty fundamental and valuation expectations, which have yet to consistently materialize … we continue to view significant risk in the story.
Levy wrote further, “Given the recent sales and share price reactions to external factors, coupled with still sluggish internal results, we question whether the likelihood of a significant multiple expansion recovery would materialize in the near-term, even if results begin to show a meaningful acceleration.”
The initial E. Coli food safety issue resulted in a steep drop in stock price initially back in 2015, with Chipotle failing to gain momentum ever since. This might have something to do with the entire outbreak resulting in stores closing for less than half of a business day, and then opening back up to business as usual, save the offer of free burritos for everyone who came in, the day after a massive food safety issue.
Sales are down 4% and profits are down around 70% in 12 months ending this past June compared with the same period in 2015. Chipotle shares hit a low Tuesday morning of $304.10, a level not seen since February 2013. By mid-afternoon, it was trading above $307 a share. The stock is down 18.2% year to date through Monday compared with the S&P 500’s 8.5% gain.