The Chipotle stock price is up 0.48% in early afternoon trading today (Wednesday), slightly rallying after a potential new strain of E. coli has sickened individuals in North Dakota, Kansas, and Oklahoma.
But Chipotle Mexican Grill Inc. (NYSE: CMG) has yet to identify the exact source for the original E. coli outbreaks, and it's the reason we know that this Chipotle stock rally won't last...
Since the store closings in Portland, Ore., and Washington state, where the outbreak was first reported, patrons of Chipotle in Maryland, California, Illinois, Minnesota, New York, Ohio, and Pennsylvania have also contracted the bacteria.
And Chipotle customers are now taking action against the company...
State health officials announced on Dec. 8 that 120 students at Boston College reported illnesses after eating at Chipotle. It turns out that the students didn't have E. coli, but they did contract a fast-spreading airborne bug known as norovirus, which causes gastrointestinal distress, according to TODAY News.
The mother of one of the sickened patrons filed a lawsuit against the company on Dec. 16, according to Business Insider.
In the lawsuit, the mother is seeking compensation for her son's pain, injuries, and disruption of daily life.
The Associated Press reported that Chipotle is taking new steps to prevent future outbreaks:
- Dipping onions in boiling water before the onions are chopped
- Marinating raw chicken in resealable bags rather than in bowls
- Adding cilantro to freshly cooked rice so the heat removes microbes from the cilantro
But this isn't enough to stabilize the CMG stock price. Chipotle is not only losing customers because of the outbreaks, but it's also losing money every time it has to close a store.
You see, the history of other companies in similars position suggests the Chipotle stock price will continue to plummet into 2016.
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The Chipotle Stock Price Can Reach New Lows in 2016
When other companies were in similar positions to Chipotle, it took a long time for these chains to regain customer confidence.
In 2006, there were 71 Taco Bell customers who contracted E. coli. In 1993, 623 people contracted E. coli from Jack in the Box. Four children died because of the bacteria, and many of the affected individuals have suffered long-term complications.
In November, Money Morning Technical Trading Specialist D.R. Barton warned investors on FOX Business that Taco Bell and Jack in the Box saw same-store sales drop for over half a year after the outbreaks first occurred.
And those aren't the only times a restaurant stock has tumbled after health scares...
In July 2013, there were concerns over the quality of meat McDonald's Corp. (NYSE: MCD) was purchasing in Japan. The MCD stock price dropped 4.49% from the end of July to the end of August.
Chipotle warned investors in a recent regulatory filing that sales could decrease even further as more cases are discovered. As new cases are reported, it will extend the time needed for customers and shareholders to regain confidence in CMG stock.
The outbreak has caused analysts to drastically lower price targets for the Chipotle stock price. Analysts at Bank of America have lowered their price target from $750 to $470. Analysts at the Maxim Group lowered their price from $718 to $585.
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