Chipotle's stock is tanking on reports of rats, norovirus at its restaurants

Key Points
  • Chipotle Mexican Grill's stock was down more than three percent in intraday trading after more negative headlines.
  • A confirmed norovirius outbreak in Sterling, Virginia, brings back the negative publicity from the past two years when the chain dealt with a number of food-borne illnesses at its restaurants.
  • Despite better-than-expected earnings last quarter, the stock has performed badly since the last earnings call on April 25.
Rodents fall from ceiling at Dallas Chipotle
Rodents fall from ceiling at Dallas Chipotle

Chipotle Mexican Grill's stock tumbled more than 3 percent Thursday as investors reacted to a string of bad news.

Tests confirmed that a customer who ate at a Sterling, Virginia, location was sickened by norovirus, according to Reuters. The restaurant was closed briefly after the reports of illness surfaced, but it has since reopened after a deep cleaning.

Although only one customer has been confirmed with norovirus, The Wall Street Journal said Thursday 133 diners reporting being sickened at the Sterling location through the food poisoning website

Reports also surfaced that rodents were spotted Tuesday at a Dallas-area restaurant. One customer told NBC DFW her lunch was "ruined by rodents falling from the ceiling."

Diners captured cellphone video inside the restaurant that show rodents crawling around the floor and one climbing up the wall.

A Chipotle statement said it was "an extremely isolated and rare incident."

These incidents, and the stock's reaction, underscore how difficult it is for Chipotle as it works to restore its image after a string of high-profile food-borne illnesses at its restaurants, beginning in 2015.

Although it has been more than two years, and the chain had begun to move past the incidents, the latest news has sparked more selling from Wall Street.

Stephen Anderson, a senior analyst at Maxim Group, said the recent norovirus incident does not change his buy rating, which resulted from an upgrade on Tuesday, because of the isolated nature of the incident, calling it "random chance."

"Chipotle is under the microscope quite literally because of the food issues they've had in the past, but barring anything much more significant, I think we find a bottom soon and the stock does recover," Anderson said.

The stock is down 27 percent since its high in mid-May, due partly worse-than-expected margins thanks to higher costs for marketing and the volatile price of avocados.

As for the norovirus outbreak, Chipotle's food safety director, Jim Marsden, said the "norovirus does not come from our food supply, and it is safe to eat at Chipotle." It can be transmitted by anyone who is sick, including customers, who visit the location.

The company has also taken action to fix the rodent problem at the Dallas-area restaurant.

A Chipotle spokesperson said there was a "small structural gap in the building" where the rodents likely entered, which is being repaired.

"Additionally, we reached out to the customer to make things right," the spokesperson said.

One customer, Daniela Ornelas, told NBC DFW she was happy with how the employees handled the situation but would likely not return to the restaurant.

That sentiment is Chipotle's key battle as it tries to woo diners back.

At the moment, opinion is mixed on Wall Street about whether it can do that. On Wednesday, BMO and Wells Fargo Securities downgraded the company's stock.

"While norovirus at a single location is not overly significant on the surface, we believe there is greater uncertainty now as there is a reasonable probability that media coverage will outweigh the severity of the incident and create renewed same-store sales weakness, expanding downside risk within our framework," BMO Capital Markets' Andrew Strelzik wrote in a note to clients Wednesday.

But Telsey Advisory Group upgraded it the same day, saying the lower stock price gives investors an opportunity to benefit from the company's longer-term plans.


Bill Ackman tweets picture of himself ordering Chipotle in middle of latest food safety scare

Bill Ackman tweets picture of himself ordering Chipotle in middle of latest food safety scare
Bill Ackman tweets picture of himself ordering Chipotle in middle of latest food safety scare