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Chipotle Mexican Grill, Inc. Slapped, Earnings Shrink Ahead

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Chipotle Mexican Grill, Inc. was, up until last week, the sort of firm that seemed to be changing a very intransitive part of the US economy. The firm’s fast-casual restaurant appeared to be hastening changes in the older, less dynamic fast food businesses like McDonald’s Corp. This morning, however, Wall Street is saying that shares may fall further.

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The catalysts for the negativity surrounding Chipotle Mexican Grill is the firm’s link to an outbreak of E-coli. The bacteria is known to cause severe food poisoning and may even be dangerous for people in a  weakened condition. On Monday morning BofA/Merrill Lynch downgraded the firm to underperform with a price target of $470, and it wasn’t the only research house to respond.

Chipotle crushed by E-Coli slump

Sterne Agee CRT joined Bank of America in downgrading Chipotle Mexican Grill, Inc. . the firm changed its rating on the firm’s stock from Buy to Neutral. Piper Jaffray analyst, Nicole Miller Regan, while keeping her estimates on the firm’s earnings the same for the time being, was cautious about the future of Chipotle.

Regan noted that a 1 percent fall in same-store sales at Chipotle meant a change of 40 cents per share in her earnings numbers. That leaves them open to significant revision, or error, as the E-Coli problem marches on.

Regan kept her price target on shares in the fast-casual restaurant at $737, but said that some impact was likely to be seen on year over year comparisons in the coming quarters. She pointed to two recent cases, Taco Bell after an outbreak of Salmonella in 2010 and an e-coli outbreak at Jack in the Box in 1993.

Chipotle shares get rocked

On Monday morning shares in Chipotle Mexican Grill, Inc. opened at a price of $534.51. Last week shares were selling for more than $600 each before news of the bacteria outbreak became public knowledge. It seems that Chipotle is likely to be in trouble for quite a while, especially if the downgrades on Wall Street are to be followed.

Things did, however, look a little brighter for shares in Chipotle on Monday morning. At time of writing, just after the market opened for the day, shares in the firm were up by 3.5 percent. That recovery leaves the firm’s shareholders a long way off of last week’s numbers, but is a good sign that there may be some support for the firm now that it claims the outbreak is controlled.

It seems that Chipotle sales, despite the rocket-ship growth the firm has managed to put up in recent years, are due for a slump on the back of the national attention given to the e-coli outbreak. Chipotle deeply disappointed investors after is showed off numbers for the three months through September, and if Wall Street isn’t able to get a good read on the e-coli impact, it may do so again in January.

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