Shares of Chipotle (CMG) fell another 2.17% in pre-market trading Tuesday after financial firm Wedbush Securities ripped off the Band-Aid with a stark outlook, saying that the fast casual Mexican chain won’t recover sales lost from the norovirus and E. Coli outbreaks until 2018, and that’s the best case scenario.
The analysts downgraded the stock to underperform and slashed the target price from $450 to $400.
“Based on our belief that current valuation reflects an overly optimistic outlook regarding Chipotle’s path to recovery, we downgrade shares to underperform from neutral,” wrote a team of analysts led by Nick Setyan. They noted that Chipotle would have to unceasingly accelerate growth for three years if they were to recover pre-outbreak levels of comparable same store sales, a measure of revenue, of $2.5 million.
Wedbush also noted that Chipotle also has other headwinds to contend with, including labor and other operating expenses, which the fast food chain has upped in the first quarter. Chipotle reported an expected loss of $1 per share this quarter due to additional safety protocols and more staffing for its free burrito offers.
Once a Wall Street darling for its stellar growth and profits, the Denver-based restaurant chain has seen stock prices sink nearly 37% since their August highs after breakouts of E. Coli in nine states and a norovirus episode in Boston were reported. Same-store sales dropped 26% in February and another 22% in the first week of March.
The securities firm forecasts 2018 earnings per share at $15.68, with the best case scenario of $17.13 per share. For 2016, Wedbush also cut estimated EPS from $7.06 to $4.12, in response to Chipotle’s recent first quarter results.
