Chipotle (CMG) Faces Fresh Investigation, Shares Decline

Chipotle Mexican Grill, Inc. (NYSE:CMG) continues to be under the microscope over food safety issues.

Yesterday, the burrito chain reported that some of its workers complained of nausea, vomiting and diarrhea to local health officials. According to a Business Insider report, The Los Angeles Health Department's Acute Communicable Disease Control unit has sent an email stating that it "is aware of reports of illness and is investigating."

The restaurant in question is situated at 4550 West Pico Blvd. in Los Angeles. The sick employees have been kept out of work for the time being. A number of customers have also reported similar symptoms after eating at the same restaurant on IWasPoisoned.com, which is a platform to anonymously report suspected foodborne illnesses.

Food Safety Issues Continue

Throughout 2016 Chipotle’s results continued to be affected by the negative publicity related to food-borne illnesses, which surfaced toward 2015-end. As a safety measure, the fast-casual chain was forced to close several outlets.

Although these were reopened later with fresh ingredients and extensive cleaning and sanitizing activities, the incidents dealt a severe blow to sales. The company’s earnings and revenues came under tremendous pressure last year. Moreover, comps witnessed a decline of 20.4% in 2016.

Chipotle Mexican Grill, Inc. Revenue (TTM)

Chipotle Mexican Grill, Inc. Revenue (TTM) | Chipotle Mexican Grill, Inc. Quote

Although 2017 was expected to be a turnaround year for the company, Chipotle recently closed a Washington area outlet due to an apparent norovirus alert, starting a fresh round of food safety scare. Evidence of rodents was found at a Dallas outlet, further adding to the woes.

Meanwhile, higher marketing activities aimed to bring back customers are expected to have an adverse impact on margins too.

Stock Suffers on the Bourses

Shares dropped 4.6% at the end of Wednesday’s trading after the news surfaced. Year to date, shares have lost a notable 20.8% of its value against the industry’s gain of 15.3%. The stock decline is mainly attributable to the continued food safety issue. Renewed food safety concerns along with high costs currently limit the upside potential of the stock.

Zacks Rank and Stocks to Consider

Chipotle has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same space are Famous Dave's of America, Inc. (NASDAQ:DAVE) , Arcos Dorados Holdings Inc. (NYSE:ARCO) and Good Times Restaurants, Inc. (NASDAQ:GTIM) .

While Famous Dave's of America sports a Zacks Rank #1 (Strong Buy), Arcos Dorados and Good Times Restaurants carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

One estimate for the current year moved north over the past 60 days versus no southward revisions in case of each of the three companies.

Zacks’ Best Private Investment Ideas

While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.

Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors.

Click here for Zacks' private trades >>