Chipotle Probe by CDC Concludes Without Source Being Found

Chipotle on the Mend: Is E. Coli Crisis Over?
  • Agency unable to determine exact cause of contamination
  • Shares rise as investors bet that worst is over for CMG

The U.S. Centers for Disease Control and Prevention has concluded its investigation into two E. coli outbreaks that sickened dozens of Chipotle Mexican Grill Inc. customers and thrust the chain into a crisis that wiped out more than $10 billion in market value.

The CDC was unable to determine the source of contamination but said it was probably a common meal item or ingredient. Chipotle shares rose on the news, as investors bet that the worst was over for the company after almost three months of negative headlines.

Chipotle’s reputation -- built on the promise of fast food made with fresh, locally sourced ingredients -- has been battered in recent months. The two E. coli outbreaks, which sickened at least 60 customers in 14 states, raised questions about the chain’s protocols for handling ingredients. Chipotle has apologized for making customers sick and announced changes to it says will make it an industry leader in food safety.

The announcement from the CDC is good news for Chipotle, but it could take several months to lure customers back to the chain, according to Stephen Anderson, an analyst at Maxim Group.

“Customers who have switched to competitors since the outbreak may be reluctant, at least in the next couple of quarters, to switch back to Chipotle,” Anderson said in a note. He raised his price target on the company to $455 from $395 but noted that “uncertainty remains” as Chipotle seeks to recover from the food-safety crisis.

Chipotle’s shares rose 4.3 percent on Monday to close at $472.64 in New York. The stock slipped 30 percent in 2015, with the losses largely tied to the food-safety crisis.

The CDC, in its announcement ending the E. coli probe, added Kentucky and Delaware to the list of states where customers got sick with E. coli after eating at Chipotle. That brought the total to at least 60 customers in 14 states, according to CDC.

‘Significant Steps’

Chipotle, which is scheduled to report earnings on Tuesday, said last month that sales plunged almost 15 percent in the fourth quarter, the first decline for the chain as a public company.

“We are pleased that the CDC has concluded its investigation, and we have offered our full cooperation throughout,” Chris Arnold, a spokesman for the company, said in an e-mail. “Over the past few months we have taken significant steps to improve the safety of all of the food we serve, and we are confident that the changes we have made mean that every item on our menu is delicious and safe.”

The Denver-based company also disclosed last month that it had been served with a grand jury subpoena in a federal grand jury investigation in California.

The criminal probe stems from a norovirus outbreak last summer at a restaurant in Simi Valley, California, where more than 200 workers and customers were sickened. A Chipotle restaurant in Boston was shuttered for weeks in December after a norovirus outbreak there sickened more than 140 students from nearby Boston College.

The specter of the criminal investigation remains source of uncertainty for the company, Anderson said.

“While we believe management’s more aggressive food safety stance may mitigate any unfavorable verdict, we still caution that such a verdict may lead to another bout of negative headline risk,” he said.

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