It’s rare that mixed reviews of a new menu item are good news for a restaurant stock. However, Mizuho analyst Jeremy Scott says mixed online customer conversations about the new Chipotle Mexican Grill (NYSE: CMG) queso is better than previous buzz about food safety outbreaks.
In a recent note to clients, Scott says the new Chipotle queso offering, which is free from stabilizing agents such as xantham gum, has a unique taste and texture that has divided diners.
“Much of the early critique of Chipotle’s queso focuses on its ‘grainy’ and ‘thin’ texture relative to competitor products,” Scott says.
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As a result of the mixed reviews, Mizuho says repeat orders among customers may be limited, but projects that the queso could nevertheless help boost Chipotle’s margins by 0.5 percent in time.
Chipotle launched its new queso product nationwide starting on Sept. 12 after a limited trial period. Mizuho estimates that about 16.5 percent of New York customers tried the queso during the first 10 days it was offered.
For long-term Chipotle investors, the tastiest part of the queso offering may be that customers now have a new topic to discuss on social media.
In 2015, hundreds of Chipotle customers became ill after E. coli and norovirus outbreaks impacted restaurants in nine different states. At least 12 customers became sick following a separate norovirus outbreak at a Virginia Chipotle in July 2017.
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“We view a shift in consumer and media focus toward product and away from earlier food safety events as a positive,” Scott says of the mixed queso reviews.
Looking ahead, Mizuho is expecting flat growth in same-restaurant sales in the third quarter, as a late-quarter boost from queso sales will likely offset any lingering effects of the most recent norovirus scare.
Mizuho has a “buy” rating on Chipotle and a $450 price target for the stock.
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Queso Changes the Chipotle Conversation originally appeared on usnews.com
