Detwiler Fenton Says CDC Still Unable To Identify Chipotle's E. Coli Source, Traffic Will Be Challenged

Courtesy of Benzinga.

• Chipotle Mexican Grill, Inc. (NYSE: CMG) continues to suffer from the E. coli outbreak in the US.
• In a report issued Monday, Detwiler Fenton analyst Jim Sanderson said this will remain a long-term challenge for the company to overcome.

Analysts at Detwiler Fenton think concerns over food security will continue to afflict Chipotle for several quarters, even though recent reports suggest the company has started to resolve the issues around E. coli. Generally, they believe that until the company can prove that its food is really safe and disease free, consumers will avoid dining in its restaurants, especially in the nine states where the outbreak has been reported. These states host more than half of the company’s U.S. locations.

Related Link: Wall Street Mixed On Chipotle: More Educated Customer Base And Food With Integrity Branding Complicates

While bad publicity for Chipotle has proliferated quickly, the truth is that the Center for Disease Control (CDC) has yet to confirm the source of the disease. However, the analysts think the company’s strategy "may not have mitigated further spread of the disease from the firm's supply-chain given that there is a several-week delay in reporting disease outbreaks once identified."

Even if no more cases emerge, Sanderson thinks Chipotle "will face a broader build-up of negative consumer sentiment that will take quarters to remediate." As this process unravels, the expert believes the company's traffic will continue to be challenged through at least the first half of 2016.

At this stage, Sanderson believes Chipotle, working with the CDC, "is still trying to understand how the disease occurred and spread. This tells us that going forward, CMG has months of PR work to take-on to effectively explain to consumers how this diseases occurred and why it won't happen again." If effective (and assuming no more E. coli reports in the future), the company's marketing program could take more than a few quarters before it gets Chipotle to regain the lost ground.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

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