Wall Street is losing hope in Chipotle's recovery.
The company's shares have spiraled nearly 14% in the last week, after news emerged of a norovirus outbreak connected to one of its restaurants in Sterling, Virginia.
Research analysts are now downgrading the company's stock and cutting sales estimates ahead of its quarterly earnings report on Tuesday.
Analysts say the outbreak has renewed customers' fears about eating at the burrito chain since the E. coli and norovirus outbreaks in late 2015 that affected restaurants in 14 states.
"We infer major setbacks to Chipotle's ongoing recover efforts at '15 health-related concerns on virus outbreaks at several locations that precipitated a steep and protracted downturn in customer traffic," CFRA analyst Tuna Amobi wrote in a research note Monday. He downgraded Chipotle to "hold" from "buy" and cut his 12-month stock price target by more than a third to $350 per share.
Nomura Instinet analyst Mark Kalinowski also lowered estimates for the company's same-store sales and earnings.
"We continue to view the Chipotle stock as one of the higher-risk restaurant names we cover... in part due to the health-related challenges that clearly have not fully dissipated," Kalinowski wrote in a research note.
Illness reports spike tied to Chipotle
Customers' fears aren't totally unfounded, according to Patrick Quade, founder of the website iwaspoisoned.com, which allows people to self-report suspected foodborne illnesses.
The rate of illness reports connected to Chipotle restaurants last month — before the recent norovirus outbreak — was nine times higher than the average rate associated with 10 of the chain's US competitors, which have a collective 85,000 restaurants, according to Quade.
The rate of reporting was calculated based on the number of illness reports for every 1,000 restaurant locations.
Chipotle had higher rates of reporting than its peers even before the E. coli outbreak, Quade said. Reports spiked around the time of the E. coli outbreak but then steadily fell over time.
Chipotle had its lowest rate of reporting in years in June 2017, he said.
"It was the best month Chipotle ever had," Quade said.
Then reports spiked again in July, around the time of the norovirus outbreak in Sterling.
Chipotle has been fighting to restore its public image since the E. coli outbreak that sent sales sliding by more than 30%. The company has lured customers back to its restaurants with millions of dollars in free food offers, and it has also made sweeping changes to its food preparation procedures to ramp up food safety and prevent another outbreak.
Chipotle CEO Steve Ells said last week that the company took "aggressive action" to address the norovirus outbreak in Sterling, and that Chipotle has become a leader in restaurant food safety in the aftermath of the E. coli outbreak.
"In the rare case that an event does occur these systems and the associated processes are designed to provide very fast detection and rigorous procedures to quickly remedy the situation," Ells said. "We believe these advancements, among others, have put us on the path to industry leadership while we continually strive to find new and innovative ways to ensure that our restaurants are safe."
It remains to be seen whether a single outbreak limited to one restaurant can derail Chipotle's two-year recovery, but investors and analysts seem to think it's not unlikely, and that sales will suffer as a result.