Chipotle Mexican Grill, Inc. (CMG) shares fell more than 7% before regaining ground during Thursday's session. On Wednesday, the company reported revenue that rose 13% to $1.3 billion, beating consensus estimates by $30 million, and non-GAAP net income that reached $3.40 per share, beating consensus estimates by 37 cents per share. However, the bullish sentiment was clouded by news of an E. coli investigation.
The company reported in its 10-Q SEC filing that it was subpoenaed in connection with an official criminal investigation being conducted by a California district attorney and the Food and Drug Administration. The subpoena required the production of documents and information related to company-wide food safety matters dating back to January 2013. The company noted that it continues to comply with the investigation and that any fines or penalties are uncertain.
Despite the investigation, most analysts remain bullish on the stock following the earnings report. Cowen & Co. analyst Andrew Charles raised his price target to $660 and reiterated a Market Perform rating, saying that the earnings lived up to high expectations. Meanwhile, SunTrust analyst Jack Bartlett raised his price target to $780 and maintained a Buy rating, saying that the restaurant chain is in the early stage of a strong recovery that could result in strong margin expansion.
From a technical standpoint, the stock broke down from trendline support at around $700 to briefly touch the 50-day moving average before rebounding to pivot point support near $675. The relative strength index (RSI) moderated to neutral levels of 44.75, but the moving average convergence divergence (MACD) accelerated its bearish downtrend. These indicators suggest that the stock could see more downside ahead.
Traders should watch for some consolidation below trendline resistance at the $700 level over the coming sessions. If the stock breaks down from the pivot point, traders could see a move lower to retest the 50-day moving average. If the stock rebounds above trendline resistance, traders could see a move back into the previous price channel, with the next major resistance level being R1 resistance at $746.32.
The author holds no position in the stock(s) mentioned except through passively managed index funds.