Controversies Surrounding Chipotle, Herbalife Don't Faze This Analyst

Chipotle Mexican Grill, Inc. CMG has had a rough week. First a norovirus outbreak, then raining rats.

Its stock has trailed off 9.4 percent since the string of negative press began Tuesday.

But Tigress Financial Partners does not see a selling opportunity in the Street’s pullback. Ivan Feinseth, partner and chief investment officer at Tigress, reaffirmed the firm’s Neutral rating on the stock justified not by public sentiment but primarily by valuation.

Feinseth was already aware of the risks surrounding Chipotle when he last reiterated his Hold two years ago.

“They offer organic, non-herbicide farm products, and when you farm organically, you use manure for fertilizer, and unless the vegetables are washed very well, if they’re not cooked, you have the possibility of some kind of contamination,” Feinseth said Friday on Benzinga’s PreMarket Prep radio show.

“That’s a basic problem, and unfortunately in some way in the preparation process, they have had issues.”

For a brand with high consumer awareness and a company that trades at a premium multiple, even one issue can become a problem, and the compounding issues pose a risk to share values, Feinseth added.

He expects the financial fallout from the week to be reflected in guidance rather than Chipotle’s next earnings report.

Sympathy For The Outcasts

Herbalife Ltd. HLF has suffered similar PR hits, including a campaign by Pershing Square’s Bill Ackman culminating in an acclaimed documentary of the alleged “pyramid scheme.”

But Tigress sees strength in the 36-year-old company. “They’ll be around for a 37th year,” Feinseth said.

He maintained a Buy on the stock two months ago and noted Friday that the firm has been profitable for all but one of its 14 years in the public markets.

“They have a good product line, they have an interesting business model,” he said. “While multi-level marketing is controversial, it’s been around for 100 years ... Now that the overhang of controversy has been resolved and they’ve made adjustments, payed a small fine, changed some of their marketing focus, I think the trend will be positive.”

Related Links:

How Carl Icahn Is Destroying One Recent Herbalife Short Thesis Definition Of ‘Contrarian?’ Analyst Upgrades Chipotle Despite Renewed Headline Risk

PreMarket Prep is a daily morning show about short-term trading ideas and technical setups. It airs live from 8–9 a.m. ET here, and the podcast is here