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Have Chipotle (CMG) Shares Bottomed Out Above $400?

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Once a darling stock, Chipotle Mexican Grill, Inc. (CMG - Free Report) has been hit by a series of E. coli and norovirus contamination incidences since 2015-end. This fallen angel recorded revenues at an extraordinary CAGR of over 23% till 2014, from the time it went public. The stunning performance was supported by solid comparable restaurant sales (comps) growth.

Negative Publicity

Chipotle’s performance has been largely hampered by the food-safety issues. The restaurant chain has been reeling under negative publicity related to the E. coli and norovirus outburst.

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 Chipotle’s sales.

The fact that Chipotle uses only healthy ingredients has long been its marketing strength and has been attracting customers despite its comparatively high prices. However, with the negative publicity associated with the E. coli and norovirus outbreak, Chipotle somewhat fell out of favor with health-conscious diners.

Revival Efforts

Notably, Chipotle is leaving no stone unturned to lure back customers to its restaurants.

The company has undertaken an inclusive assessment of its food safety programs and practices to ensure the quality and safety of food.

Chipotle is also focusing on developing new food safety protocols which include DNA-based testing of several ingredients coupled with changes to food preparation and food handling practices. Additionally, the company is emphasizing on internal training programs to make sure that its employees are aware of the company’s standards for food safety and handling.

Moreover, for the implementation of these food safety practices, the company has hired extra staff at its restaurants to prepare and serve food and help customers redeem promotional offers.

Also, Chipotle has reportedly enforced stricter guidelines for suppliers in the wake of these outbreaks. Additionally, the company has turned to menu innovation and also intends to further roll out a number of marketing and promotional activities to regain customers.

Has Chipotle Bottomed Out?

Notably, Chipotle’s shares have plunged over 46% since mid Oct-2015. Thus, Chipotle’s recent bearish trend has definitely been present, but is it warranted?

Interestingly, though the company shares have taken a beating, the stock has held steady above $400 since mid-March on the back of company’s revival efforts.

Though it will take some time for the fast casual restaurant operator to witness a complete turnaround in its business, it seems like that the worst is over for this Zacks Rank #3 (Hold) company with shares likely to be bottomed out above $400.

Stocks to Consider

Better-ranked stocks worth considering in this sector include Papa John's International Inc. (PZZA - Free Report) , BJ's Restaurants, Inc. (BJRI - Free Report) and The Wendy's Company (WEN - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy).

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