Chipotle's Shares Fall As Stock Is Downgraded - Opposing Views

Chipotle's Shares Fall As Stock Is Downgraded

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Fast-food chain Chipotle has had a tough time regaining customers since food safety scares began plaguing the company in 2015. On Oct. 18, the company's stock was downgraded by Bank of America.

Chipotle's net stock inched up slightly after rolling out a new queso dip. Shares rose by about 10 percent in October, according to CNBC. Despite the rise, Chipotle shares have still declined by 12 percent in 2017 overall.

"We are downgrading Chipotle to Underperform from Neutral as we believe, assuming no significant tax reform, that 2018 and 2019 consensus EPS (earnings per share) needs to drop at least 10 percent," said Bank of America analyst Gregory Francfort. "We believe further gains from trimming hours will prove difficult which limits the opportunity to get labor below 27 percent of sales even if traffic recovers."

The company's stock fell another 2 percent after being downgraded. As of the morning of Oct. 18, shares sat at $322, Denver Business Journal reports.

Labor costs have also been a problem for Chipotle. CNBC reports that the average weekly working hours of full and part-time employees were slashed to 21.7 in 2016 from 34.6 in 2006.

Chipotle's third quarter report is due on Oct. 24, though analysts don't expect the company to do well and are urging investors to get out.

Barron's, a member of the Dow Jones Network, reports that Wells Fargo analyst Jeff Farmer reduced Chipotle's price target from $375 to $290, claiming that the company is about to suffer "another quarter of underwhelming average unit volume recovery and sizeable downward EPS revision to 2018 and 2019 numbers." 

According to expert analyst Sara Senatore, the "best estimate" Chipotle can hope for is a flat quarter. The success of the company's effort to revive its brand with the new queso dip is yet to be seen.

According to Guru Focus, Chipotle had specifically avoided creating a queso dip due to concerns about artificial additives. The chain finally decided to release an additive-free queso in September 2017 in response to falling sales and a mounting rivalry with fellow Mexican-inspired fast food chain Del Taco.

So far, Del Taco's blanco queso dip, which Del Taco states is also free of artificial additives, has outperformed Chipotle's in taste tests. As of October 2017, Del Taco's dip is also more affordable than Chipotle's -- $0.50 vs $2.10 -- which may give Del Taco an edge with consumers.

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Sources: CNBCDenver Business Journal via BizJournals.comBarron'sGuru Focus / Featured Images: proshob/Wikimedia Commons / Embedded Images: Guilhem Vellut/Flickr, Aranami/Flickr

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