Morgan Stanley Downgrades Chipotle, Says 13% Of Consumers Won't Go Back Anytime Soon

Morgan Stanley’s survey of 2,000 customers revealed the sales recovery at Chipotle Mexican Grill, Inc. (NYSE: CMG) would take longer than the market estimates, and could potentially be more costly, as the company might need to ramp marketing spend to lure customers back.

Morgan Stanley’s John Glass downgraded the rating on the company from Overweight to Equal-weight, while lowering the price target from $500 to $405.

What The Survey Showed

Glass mentioned that the survey indicated that 13 percent of consumers were unlikely to go back to Chipotle anytime soon, while another 20 percent have reduced their frequency.

Related Link: 4 Takeaways Related To Chipotle's Food Safety Practices Probe

This survey, conducted in mid-late June, was a repeat of the consumer survey run by Morgan Stanley in January 2016.

“A full sales recovery to prior peak volumes could take years in our view, as evidenced by the fact that, according to our survey, approximately 25 percent of CMG customers either have stopped going or reduced frequency, even six months after the last reported food safety incident,” Glass stated.

Improvement Will Take Time

The analyst noted that Chipotle had recently launched a limited time frequency-based rewards program.

Although comps are expected to start to improve in 2H16, Glass pointed out that the survey had “compelled us to rethink the rate of improvement and commensurate margin gains in both '16 and '17, as well as longer term.”

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