4 Takeaways Related To Chipotle's Food Safety Practices Probe

Credit Suisse held a conference call with food safety attorney, Shawn Stevens, on June 20 “to better understand the potential implications of the Federal investigations” into the food safety practices of Chipotle Mexican Grill, Inc. (NYSE: CMG)

Credit Suisse’s Jason West maintains an Outperform rating on the company, with a price target of $500.

The Impact

“Even with the help of an experienced food safety lawyer, predicting the outcome of this type of case is impossible. However, we came away with a better sense of why CMG is being criminally investigated and of the potential range of outcomes,” West mentioned.

The analyst believes the investigation would not have a meaningful negative impact for Chipotle Mexican Grill, apart from the significant brand damage that has already been caused.

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Key Takeaways

According to the Credit Suisse report, there were four key takeaways from the conference call.

1. “Criminal investigations around food safety events are becoming more commonplace, tied to the new FDA mandate under the Food Safety Modernization Act (FSMA).”
2. Stevens does not expect Chipotle Mexican Grill’s executives to be indicted, although the FDA and Department of Justice have been more aggressive about this issue in recent years.
3. According to Stevens, the most likely outcome would be findings of gaps in food safety at the company, which would likely lead to a fine. The attorney also believes that such an outcome “would be unlikely to reignite consumer angst around the brand.”
4. Although it is difficult to predict the timing of a resolution, the lawyer believes that that authorities are likely to look to closing the investigation before the final FSMA rules are implemented in September 2016.