Chipotle’s Stock Rocked By Worry About E.coli Outbreak

© Craig Warga/Bloomberg via Getty Images

Chipotle Mexican Grill Inc. shares took another drubbing Friday, on mounting concerns about the E.coli outbreak that has shuttered 43 of the company’s restaurants in Washington and Oregon.

Shares of the fast-casual dining chain fell 2.6% Friday, and are now down 16% in the past month, underperforming the S&P 500 which is up 5.5% in the same time frame. The stock  is down 12% in the year so far, after gaining 29% in 2014.

Baird Equity Research downgraded the stock to neutral from outperform, and said the situation is taking much longer than it expected to resolve, and attracting a great deal of media attention that may dent consumer sentiment toward the company.

“Our call is based entirely on concerns about the uncertain near-term outlook; we remain highly confident in longer-term fundamentals and would quickly return to a constructive stance if the issue proves to be only a minor/temporary headwind,” analysts led by David Tarantino wrote in a note.

Chipotle has built its brand on the back of its use of fresh foods, striking a chord with millennials seeking a healthier alternative to traditional fast-food restaurants.

Chipotle earlier this week said it has hired two food safety consulting firms to help assess and improve its food safety standards. The company is cooperating with health officials investigating the outbreak, which had sickened 12 people in Oregon as of Tuesday, according to the Oregon Health Authority.

Three of those patients had been hospitalized. In Washington, the number of patients stood at 28 as of Thursday, according to the Washington Department of Health.

There have been no deaths from the current outbreak. Scientists believe the microorganism responsible was carried on fresh produce such as lettuce or tomatoes, Dr. Kathy Lofy, a state health officer for Washington, told a news conference earlier this week.

Chipotle said the outbreak has been linked to just eight of its restaurants but it has closed all 43 in the area as an extra precaution. The company has conducted deep cleaning and full sanitization of all restaurants in the area, and conducted environmental testing in restaurants and distribution centers, in addition to those conducted by government officials.

Baird’s Tarantino said he is less concerned about the temporary closings, and more about the media coverage linking the brand to other outbreaks of foodborne illnesses, such as an outbreak of Salmonella in Minnesota in September, which the Minnesota Dept. of Health said was caused by tomatoes. As many as 64 cases and 22 Chipotle locations were identified in that outbreak, according to the health department.

“Incidents involving foodborne illness tied to Chipotle’s restaurants could damage the reputation of the brand and impact demand trends negatively,” said Baird.

The Center for Disease Control and Prevention said the Washington and Oregon E.coli strain is the same—O26—confirming that they are linked. But the CDC has not yet identified which food stuff caused the outbreak. Laboratory testing is continuing, it said.

Written by Ciara Linnane of MarketWatch

(Source: MarketWatch)

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