4th Subpoena Damages Chipotle’s Financial Outlook

Updated: April 25, 2019 / 8:11 AM

On Thursday, the Chipotle Mexican Grill Inc said they received their fourth subpoena from U.S. federal prosecutors, in which they are seeking information related to an outbreak that left hundreds of customers sick last year in one of its restaurants in Ohio.

Following the disclosure, the company’s stocks experienced a 5 percent decline. After the drop, analysts said they see limited valuation even as the company posted better-than-expected quarterly sales and profit on Wednesday.

“It’s not a new incident but (the subpoena) is enough to shake off some of the more skittish bulls on the story,” said Maxim Group analyst Stephen Anderson.

Over the past three years, the company has endured several subpoenas regarding illnesses that link to its restaurants following salmonella, E. Coli, and norovirus outbreaks at the company’s outlets which date back to 2015 which affected hundreds of people across several states.

The latest subpoena is now the fourth the company has received and is currently part of an ongoing criminal investigation that is conducted by the U.S. Attorney’s office for the Central District of California.

In a regulatory filing on Thursday, the subpoena disclosed that it sought information related to the incidents of illnesses associated with the Ohio restaurant and restaurants in California, Massachusetts, and Virginia, which were under previous subpoenas.

Wednesday’s results follow in line with Chipotle’s efforts to ramp up their promotions, add newer menu items, and extend their delivery options. The brand also launched a loyalty program to attract the attention of customers.

From their upbeat results, the company was able to raise its full-year comparable sales growth forecast to mid-to-high-single-digit, from the prior expectations of mid-single-digit growth.

“While the company upgraded their comp outlook, we believe Chipotle needs to continue to hit double-digit comps to justify the current multiple,” said Mizuho Securities analyst Jeremy Scott.