Chipotle Mexican Grill (NYSE:CMG) has suffered in the public eye and stock market after several food-related illnesses affected consumers. Of these, an E.coli outbreak in 2015 and norovirus outbreak in 2017, caught the eye of customers and had drastic financial consequences.
A 30% loss in sales occurred following the initial outbreak, and the stock has fallen to less than half of its highest valuation since then. The company’s current earnings outlook does not look bright either. With 100% negative agreement among revising analysts, we have seen three adjustments to the company’s full-year EPS estimates within the past 60 days.
Despite all of this, the stock seems to be pushing back today. Chipotle Mexican Grill shares rose $7.84, or 2.4%, since yesterday’s close at $326.60. Why is this the case? The root is managerial transitions.
Following the incidents described above, the company restructured its leadership. In February, Chipotle announced that Steve Ells would step down as the company’s chief executive and be replaced by former Yum! Brands (NYSE:YUM) executive Brian Niccol. The stock rose 11% in after-hours trading that day.
In March, shares rose 5% following the announcement that Chris Brandt, leader of marketing efforts at Taco Bell, would become Chipotle’s chief marketing officer in the following month. These two helped increase global sales by 7% at Taco Bell in 2017, proving their reputability.
While these transitions may be the reason Chipotle stock has increased in the past month, the company’s stock market success today has more to do with a particular analyst note.
After an evaluation by RBC Capital Markets, led by analyst David Palmer, the firm’s price target for Chipotle was from $310 to $340.
This is a long term prediction by the investment bank, which thinks that the management transition, especially within the marketing sector, will have a profound impact on the future revenue and growth of the company.
Chipotle is expected to witness EPS growth of 17.59% on an annualized basis over the next three to five year, which seems to support this idea. These factors have all contributed to Chipotle’s “C” grade for Growth in our Style Scores system and a rising Zacks Rank #3 (Hold), with the potential for much stronger growth under this new leadership.
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Chipotle Mexican Grill, Inc. (CMG): Free Stock Analysis Report
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