October 25, 2017 / 11:20 AM / a year ago

Chipotle recovery seen dragging on, shares sink

Oct 25 (Reuters) - Chipotle Mexican Grill Inc’s shares were set to open at a near five-year low, a day after the burrito chain reported disappointing results, indicating that investors would have to wait much longer than expected for sales and profit to recover.

Shares slumped 10 percent to $290 in premarket trading on Wednesday.

At least nine brokerages, including Credit Suisse, cut their price targets on Wednesday. Canaccord Genuity analyst Lynne Collier was the most bearish on the stock, cutting her price target by $75 to $325.

Chipotle has been struggling to recover from a bruising string of food safety lapses that started in late 2015, including a recent norovirus outbreak at a Virginia restaurant.

The company’s stock has more than halved since touching a record high in August 2015.

Chipotle has been working on training its employees on food safety and is looking for new ways to boost sales, including adding new items such as its spicy cheese Queso dip. It is also testing frozen margaritas and desserts.

But, a five percent price hike announced on Tuesday by the company could hit traffic to its restaurants in the near-term, analysts said.

“Despite some sales lift from queso and pricing, we view this result and outlook as disappointing, particularly for those looking for a more meaningful recovery following multiple food safety events,” Credit Suisse analyst Jason West said in a research note.

For the July-September quarter, Chipotle reported slightly weaker-than-expected same-store sales and said it would open fewer restaurants than previously anticipated.

Analysts said some of their confidence in the company’s turnaround was eroded after management opted not to share its full-year same-store sales outlook for the next year, as it traditionally does while reporting third-quarter results.

RBC analyst David Palmer said the lack of outlook is “leaving us less confident that current initiatives are enough to support a fuller recovery.”

Of the 35 analysts covering the stock, 22 rate it a “hold,” and five analysts have a “sell” rating. The rest rate it “buy” or higher.

The median price target on the stock is $325.58, down 15 percent from just a month ago.

Reporting by Siddharth Cavale and Sruthi Ramakrishnan in Bengaluru; Editing by Sayantani Ghosh

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