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Chipotle stock plunges after rating downgrade over cost escalation

Shares of Chipotle Mexican Grill (NYSE: CMG) were down 6% Thursday afternoon after BMO Capital Markets downgraded them to underperform from market perform. Reducing the long-term price target on the stock by 12% to $620, the analyst cautioned that the business of the restaurant chain faces risks from the crisis in the meat industry due to virus outbreaks, referring to African swine fever.

According to the analyst, the rising prices of pork, in the wake of virus infections, might impact Chipotle’s financial performance, probably from the third quarter of 2019. Like its peers in the fast-food sector, Chipotle has come at the receiving end of the recent virus outbreak and the resultant spike in meat prices.

The analyst cautioned that the business faces risks from the crisis in the meat industry due to the virus outbreak

The downgrade also points to the long-term impact of African swine fever on the restaurant industry as the prices of animal protein are likely to stay elevated in the coming years.

Less than a month ago, the stock got a major boost after the company reported outstanding results for the first quarter, marked by a 60% surge in earnings to $3.40 per share supported by a 14% revenue growth. Encouraged by the solid outcome, the management issued a positive outlook for the fiscal year.

Related: Chipotle Mexican Grill Q1 2019 Earnings Conference Call Transcript

The downgrade comes at a time when brokerages, in general, have a bullish view on the stock, which witnessed multiple upgrades since the last earnings report. The average target price of $681.67 represents a 3% upside from the current levels.

Shares of the company lost about 6% in early trading Thursday and slipped below the $665-mark. The stock had gained steadily since the beginning of the year. In the past twelve months, it moved up about 55%.

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