The Chipotle Stock Price Will Keep Dropping Despite CEO's Apology

Chipotle CEO Steve Ells issued an apology yesterday (Thursday) to patrons who contracted E. coli from eating at the chain's restaurants.

The Chipotle stock price jumped on the news and closed at $575.34, a 2% increase from its opening price of $564.

chipotle stockBut don't expect the rally to continue. Analysts believe that the remedial costs from the outbreak will cut into margins in this quarter and the next, according to FOX Business.

This is the first time Chipotle's CEO has issued a public apology since Chipotle Mexican Grill Inc. (NYSE: CMG) first announced it was closing 43 restaurants in Portland and Washington state on Oct. 30 because of the E. coli outbreak.

"It's a really tough time,'' Ells told Matt Lauer on The Today Show. "I have to say I'm sorry for the people that got sick. They're having a tough time. I feel terrible about that, and we're doing a lot to rectify this and make sure it doesn't happen again."

The apology comes just a few days after state health officials announced on Dec. 8 that 120 students at Boston College reported illnesses after eating at Chipotle.

The students didn't contract E. coli, but they all suffered from a fast-spreading airborne bug that causes gastrointestinal distress, according to TODAY News. The restaurant in Boston has been cited for three health violations, and Chipotle has voluntarily closed the location.

For the month, the spread of E. coli from Portland and Washington to a total of nine states has caused the CMG stock price to drop by 8.71%. Year to date, the Chipotle stock price is now down 17.07%.

Despite the apology and reassurance from Chipotle's CEO, there's still reason to believe that the Chipotle stock price can plummet even further.

And CMG shareholders need to brace themselves for more bad news...

The Chipotle Stock Price Will Continue to Drop in 2016

The Chipotle stock price will continue to plummet into 2016 because the source of the E. coli outbreak has yet to be identified.

And since Chipotle can't identify the source, it cannot begin to estimate the extent of the outbreak. As more and more cases of E. coli are reported, it's clear Chipotle has no control over the situation.

Before Thanksgiving, Money Morning Technical Trading Specialist D.R. Barton warned investors that the Chipotle stock price is going to be extremely volatile now.

"In the intermediate term, I don't like Chipotle," Barton stated. Before the Chipotle stock price rallied, it was down 2.02% since Barton's prediction.

You see, previous E. coli outbreaks suggest the Chipotle stock price will remain volatile, even in 2016...

In 2006, 71 cases of E. coli were reported by Taco Bell customers. In that instance, the source of the outbreak was traced back to lettuce. In 1993, 623 people contracted E. coli from fast-food chain Jack in the Box. Four children died, and many of the affected individuals suffered long-term complications.

Barton noted that same-store sales for Jack in the Box and Taco Bell dropped for over half a year after the outbreaks.

And those aren't the only two cases of food stocks tumbling after health scares...

In July 2013, quality concerns over the meat McDonald's Corp. (NYSE: MCD) was purchasing in Japan led the stock to drop 4.49% from the end of July to the end of August.

Barton likes Chipotle stock in the long term, but there is no set timetable on when customers will regain their confidence in Chipotle.

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Since the outbreak, analysts have drastically lowered price targets for the Chipotle stock price. Analysts at the Maxim Group lowered their price target from $718 to $585. Bank of America lowered its price target even further, dropping its recommendation from $750 to $470.

The Bottom Line: The Chipotle stock price will continue to plummet because the source of the E. coli outbreak is unknown. Chipotle has warned shareholders that sales will continue to fall, and shareholders should have zero confidence that the outbreak is over.

Jack Delaney is an associate editor for Money Morning. You can follow him on Twitter and follow Money Morning on Facebook.

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