Shares of Chipotle Mexican Grill (NYSE: CMG) opened lower news on Tuesday about a possible food-borne outbreak. The chain shut down one of the locations in Ohio on Monday after a handful of customers reported having symptoms such as nausea, vomiting and fever after eating at the restaurant.
It's an isolated case right now, and we still do not know what happened or whether it's definitely tied to Chipotle. Nervous investors have been here before. The stock recovered in 2015 before the first outbreak of food-borne illness happened in the fall. The stock price will rise in 201
Guac, you like a hurricane
Tuesday is National Avocado Day. Chipotle celebrates the unofficial holiday – and offers a clever pre-order platform – by submitting AVOCADO as an offer code free guacamole for online and in-app orders. That could have been a hectic day on your Chipotle, but now the chain has to fight with demons that they thought were already defeated.
Food can make people sick, but if "eating with integrity" is your mantra, any outbreak will trigger irony and restlessness.
Baird analyst David Tarantino removes Chipotle as a result of the breakout from his firm's list of Fresh Pick recommendations. He believes that the stock's short-term risk profile will increase as Chipotle makes headlines for the wrong reasons. Tarantino sees every short-term revenue as low – and sticks to his bullish outperformance rating and target price of $ 535 – but he's right to keep his enthusiasm at bay until that story unfolds.
Chipotle rocked on the slide until Tuesday. The stock hit a new 52-week high last week after the chain had another well-received quarter, nearly double the February low. Sales rose for the fourth quarter in a row between 7% and 9%.
Comps rose 3.3% in the second quarter, and now we'll see if this negative news weighs a third of the way in Q3 on store sales. New CEO Brian Niccol has been praised by Taco Bell since February, but is now facing his first real brand polishing test. Chipotle seemed to distance himself from two blunders, but now it's back to food safety. This is not a good reason to sell the stock, but with stocks skyrocketing this year, it's a story investors need to watch closely. If the headlines do not go away, it's a fair bet that some of his clients will do that.
Rick Munarriz has no position in any of these stocks. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.