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Was Chipotle Downgrade on African Swine Fever Incredibly Misguided?

Chris Lange

Published: May 25, 2019 8:40 am

Last Updated: January 30, 2020 8:23 pm

Chipotle Mexican Grill Inc. (NYSE: CMG) has been subject to a few health scares in the past, but the most recent one may be unfounded. While shares took a hit on Thursday as the result of a downgrade, there were some that pushed back, including CNBC’s Jim Cramer.

Note that Chipotle shares have run about 53% year to date, and this downgrade — concerning a health scare — magnified the impact of the big price drop.

BMO Capital Markets downgraded Chipotle to an Underperform rating from Market Perform and lowered its price target to $620 from $675.

The firm detailed in its report that Chipotle has the greatest pork exposure in its coverage (estimated at 10%), and BMO’s work suggests that Chipotle realizes commodity inflation with little to no lag.

Jim Cramer refuted this call, saying that the stock market is going through a “sloppy” spell and conclusions are being put forward practically out of desperation. Cramer added, “This is the kind of analysis that’s born of fear and smacks of a market that’s getting ready to bottom.”

According to Chipotle’s Chief Financial Officer, Jack Hartung, the company’s exposure is less than 2%. The chain buys more expensive pork than commodity pork and does not expect any meaningful impact.

Shares of Chipotle closed Friday at $662.56, in a 52-week range of $383.20 to $727.00. The consensus price target is $683.00.