We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Chipotle Downgraded to Strong Sell on Continuing Risks
Read MoreHide Full Article
On Dec 19, Zacks Investment Research downgraded quick-casual and fresh Mexican food restaurant chains operator Chipotle Mexican Grill, Inc. (CMG - Free Report) to a Zacks Rank #5 (Strong Sell) from a Zacks Rank #3 (Hold).
What’s Hurting Chipotle?
We note that the company continues to reel under negative publicity, related to the E.coli and norovirus outbreak since the end of 2015. As a safety measure, the fast casual chain was forced to close several outlets. Although these were reopened later with fresh ingredients, and extensive cleaning and sanitizing activities, the incidents dealt a severe blow to Chipotle’s sales and reputation.
In fact, the company’s earnings and revenues have been under tremendous pressure since then. As a result, comps have declined in each of the trailing four quarters, with an average of over 23%.
Consequently, shares of Chipotle have been persistently underperforming the Zacks categorized Retail-Restaurants industry. The stock has plunged 18.3% year to date, while the broader industry is up 2.2% in the same time frame.
In addition, downward estimate revisions reflect pessimism regarding the stock’s prospects. The Zacks Consensus Estimate for 2016 and 2017 has moved south by 52.4% and 10.5%, respectively, over the last 60 days.
However, Chipotle has been undertaking various food safeties along with sales-building and technology-driven initiatives to bring back customers. Still, the company is struggling to repair its image and entice customers.
The investors’ fears were also renewed earlier this month, when Chief Executive Officer (CEO), Steve Ells, raised some concerns over the company in a conference. The chief among these was the possibility that the company might not be able to achieve its previously announced guidance.
With the third quarter 2016 results, management had announced that it expects the fourth-quarter same-store sales to decline in low single-digit rates, while 2017 same-store sales were projected to rise in high-single digits. However, Ells declared that he was “nervous” about achieving this target.
In fact, Ells had stated that he himself was not satisfied with the rate of recovery of Chipotle and the quality of the guests’ restaurant experience. He added that, most of the restaurants would be graded poorly due to untidy dining rooms, dirty soda filling stations and slow-moving lines.
Bottom Line
Given the ongoing challenges, the company’s Board of Directors discarded the co-CEO model last week and made Steve Ells, the company’s sole CEO. Along with this, the company recently named four new members to its Board of Directors in order to rejuvenate the board. With this the company aims to reinvigorate investors’ confidence and regain its footing after the food-borne outbreaks last year.
However, we note that Chipotle’s market share, particularly in the Mexican cuisine category, is unlikely to increase soon as the company already reached 60% saturation in the U.S. last year. Also, it is currently facing increased competition from the likes of Yum! Brands, Inc. (YUM - Free Report) owned Taco Bell and Jack in the Box Inc.’s (JACK - Free Report) subsidiary Qdoba. This may further lower the ability of the brand to recover and return to its peak levels of 2014, as smoothly and quickly as expected.
Papa John’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 11.31%. Further, for 2016, earnings per share are expected to grow 19.9%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Chipotle Downgraded to Strong Sell on Continuing Risks
On Dec 19, Zacks Investment Research downgraded quick-casual and fresh Mexican food restaurant chains operator Chipotle Mexican Grill, Inc. (CMG - Free Report) to a Zacks Rank #5 (Strong Sell) from a Zacks Rank #3 (Hold).
What’s Hurting Chipotle?
We note that the company continues to reel under negative publicity, related to the E.coli and norovirus outbreak since the end of 2015. As a safety measure, the fast casual chain was forced to close several outlets. Although these were reopened later with fresh ingredients, and extensive cleaning and sanitizing activities, the incidents dealt a severe blow to Chipotle’s sales and reputation.
In fact, the company’s earnings and revenues have been under tremendous pressure since then. As a result, comps have declined in each of the trailing four quarters, with an average of over 23%.
Consequently, shares of Chipotle have been persistently underperforming the Zacks categorized Retail-Restaurants industry. The stock has plunged 18.3% year to date, while the broader industry is up 2.2% in the same time frame.
In addition, downward estimate revisions reflect pessimism regarding the stock’s prospects. The Zacks Consensus Estimate for 2016 and 2017 has moved south by 52.4% and 10.5%, respectively, over the last 60 days.
However, Chipotle has been undertaking various food safeties along with sales-building and technology-driven initiatives to bring back customers. Still, the company is struggling to repair its image and entice customers.
The investors’ fears were also renewed earlier this month, when Chief Executive Officer (CEO), Steve Ells, raised some concerns over the company in a conference. The chief among these was the possibility that the company might not be able to achieve its previously announced guidance.
With the third quarter 2016 results, management had announced that it expects the fourth-quarter same-store sales to decline in low single-digit rates, while 2017 same-store sales were projected to rise in high-single digits. However, Ells declared that he was “nervous” about achieving this target.
In fact, Ells had stated that he himself was not satisfied with the rate of recovery of Chipotle and the quality of the guests’ restaurant experience. He added that, most of the restaurants would be graded poorly due to untidy dining rooms, dirty soda filling stations and slow-moving lines.
Bottom Line
Given the ongoing challenges, the company’s Board of Directors discarded the co-CEO model last week and made Steve Ells, the company’s sole CEO. Along with this, the company recently named four new members to its Board of Directors in order to rejuvenate the board. With this the company aims to reinvigorate investors’ confidence and regain its footing after the food-borne outbreaks last year.
However, we note that Chipotle’s market share, particularly in the Mexican cuisine category, is unlikely to increase soon as the company already reached 60% saturation in the U.S. last year. Also, it is currently facing increased competition from the likes of Yum! Brands, Inc. (YUM - Free Report) owned Taco Bell and Jack in the Box Inc.’s (JACK - Free Report) subsidiary Qdoba. This may further lower the ability of the brand to recover and return to its peak levels of 2014, as smoothly and quickly as expected.
A better-ranked stock in the sector is Papa John’s International, Inc. (PZZA - Free Report) with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Papa John’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 11.31%. Further, for 2016, earnings per share are expected to grow 19.9%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>