Chipotle may be headed for a 'slippery slope' as stock drops

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It was an unsavory day for Chipotle.

The stock fell nearly 6% Thursday, to $667.12, after BMO Capital Markets downgraded the fast-casual chain, cutting its price target to $620 from $675 and saying higher pork prices due to global outbreaks of African swine fever could put pressure on margins. The action marked Chipotle’s worst trading day in six months.

Now, despite the company’s efforts to roll out new menu items, boost digital sales and drive more store traffic, some experts are expecting more pain ahead.

Strategic Wealth Partners CEO Mark Tepper, for one, said that even if the African swine fever outbreaks don’t represent actual food safety concerns like the ones that have slammed Chipotle shares in the past, the company isn’t free from potential pain.

“It’s going to drive up the protein costs for them, and the Street’s already overly optimistic on their margins. They’ve seen a huge rebound in margins. And increasing costs are going to hurt their margins,” Tepper said on CNBC’s “Trading Nation.”

“They’ve also been on this massive promotion kick to drive more store traffic, which has really helped them to see some great results, but results like this diminish over time,” he added. “It requires more and more money to keep it going, and that becomes a slippery slope.”

All these factors are driving Tepper away from the stock for now.

“I’d say with that risk out there, it would have us taking profits,” he said. “I’d be sitting on the sidelines here until we see how this thing plays out with the health concern.”

Mark Newton, president and founder of Newton Advisors, is also playing it safe.

“The stock has stalled out. It got very overbought,” he said in the same “Trading Nation” interview. “Look, I love the food. I love the company. I think it’s important to differentiate that from the stock. I think at this point in the stock rally you really need to be a little bit more selective.”

He advises to wait for further dips deeper than the ones the stock saw this week.

“It certainly seems like we’ve seen momentum start to roll over a little bit in recent weeks, so I’d be a buyer, really, on pullbacks down to $600. I just don’t know if I want to touch it here,” he said. “We’ve definitely seen some evidence of slowing of late and that makes me a little bit cautious before stepping in right now.”

Chipotle stock rose nearly 1% in Friday’s premarket. Shares are up over 54% year to date.

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