Sick of Chipotle yet?


Chipotle once again makes news for making consumers sick, and the fast casual concept might just kill your portfolio as well. The all corporate store chain is making headlines for making just shy of 700 customers sick last month in Ohio. Is this a case of getting bad meats from suppliers? If you are a $CMG investor, then you would hope so. Unfortunately the true source of the outbreak comes from mishandled meat. The actual bacteria is “Clostridium perfringens,” most commonly found when meat is left out, and was not kept hot enough or cold enough.

The 647 people who self-reported went to a Chipotle in Powell, OH between 7/26 and 7/30. Looking at this, you can take away a few things. One, Chipotle leaves out meat without proper handling. Two, food handling policies and procedures are coming down from corporate, and corporate can’t even blame a franchisee, because they don’t have any. Third, this type of an outbreak over a multi-day span isn’t the result of one bad batch, it is a result of a systemic approach from staff on the ground who have supposedly been properly vetted and trained not only by local health authorities, but who have gone through internal hiring and screening.

Chipotle will make your portfolio sick too

With such a systemic problem, let’s see how $CMG is doing in the market. Performance of the stock for the year shows a 65.71% growth, and YTD growth stands at 78.44%. Earnings per share are down quarter over quarter, showing a 27.6% reduction.

Analysts can’t agree on lunch, let alone a price target for Chipotle, with targets ranging from $330 to $600. If we run the numbers ourselves, a 5 YR EBITDA Discounted Cash Flow exit has us at a $502.05 price target, and it only gets worse from there. P/E multiples when compared to peers in the space ($MCD, $YUM, $QSR, $DPZ, $SHAK, $DRI, and $ARKR) shows a price target of $288.31, a whopping 44% downside.

No free guac, and no dividend

It’s not unlikely that Chipotle would hit the sub-$250 mark, with the 52-week high and low being $247.51 and $530.68, respectively. For now, stay away from the tainted burritos and the tainted stock, because you pay extra for guac, and don’t even get a dividend.


Updated October 15, 2020

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