NEW YORK (TheStreet) -- Chipotle Mexican Grill (CMG) - Get Report stock is tumbling 4.70% to $534.81 this morning after lowering its 2015 fourth quarter guidance Friday following an expanded E. coli outbreak tied to the restaurant chain.
Taco Bell (YUM) was similarly impacted by an E. coli outbreak during 2006, and sales consequently nose-dived but ultimately rebounded because people have short-term memory, TheStreet's Jim Cramer pointed out on CNBC's Squawk on the Street this morning.
The E. coli outbreak impacting Chipotle is "not a short-term negative, but a medium-term negative is the way I'd look at it," Cramer noted.
He explained that Chipotle needs to "get their arms around" the problem as Costco (COST) has. Costco is contending with a separate E. coli outbreak tied to its chicken salad.
Real Money's Carleton English writes that, using Taco Bell's E. coli outbreak as a guide, Chipotle will likely face a difficult year regaining customers' trust.
Chipotle is probably facing a supplier problem rather than a health scandal, Cramer added.
He is taking a poll among his Twitter (TWTR) followers to determine whether people will continue to dine at the Mexican food chain.
Although Cramer is waiting to reveal the results of the poll until tonight's Mad Money show, he indicated that about half of those polled said they will avoid Chipotle while half said they will continue to dine at the restaurants.
Cramer is among the latter group. "I'd go to Chipotle," he concluded.
Separately, TheStreet Ratings team rates CHIPOTLE MEXICAN GRILL INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
We rate CHIPOTLE MEXICAN GRILL INC (CMG) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income and notable return on equity. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 1.4%. Since the same quarter one year prior, revenues rose by 12.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- CHIPOTLE MEXICAN GRILL INC has improved earnings per share by 10.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CHIPOTLE MEXICAN GRILL INC increased its bottom line by earning $14.13 versus $10.46 in the prior year. This year, the market expects an improvement in earnings ($17.07 versus $14.13).
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Hotels, Restaurants & Leisure industry average. The net income increased by 10.8% when compared to the same quarter one year prior, going from $130.80 million to $144.88 million.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market on the basis of return on equity, CHIPOTLE MEXICAN GRILL INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- The gross profit margin for CHIPOTLE MEXICAN GRILL INC is currently lower than what is desirable, coming in at 28.31%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 11.90% trails that of the industry average.
- You can view the full analysis from the report here: CMG
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.