Bill Ackman’s Chipotle bet is a recipe for indigestion

An activist investor has gobbled up a stake in USA restaurant group Chipotle Mexican Grill Inc (NYSE:CMG).

Ackman indicates that the firm will engage with Chipotle’s management and board of directors about the composition of the board, the business, operations, cost structure, management and other issues.

Chipotle stock has been struggling due to continuous fallout that stemmed from the outbreak of series of food-borne diseases that hit several of its restaurants in the United States since end of previous year.

For now, however, analysts say the company’s recovery from its food crisis is going much more slowly than it should and that not even offers of free food are helping. Carnick & Kubik LLC bought a new stake in Chipotle Mexican Grill during the first quarter worth about $160,000.

William Ackman, Pershing Square’s CEO, describes Chipotle in the filing as a strong brand with a differentiated offering, enormous growth opportunity and visionary leadership.

The analyst maintained Chipotle stock at an “Equal Weight” rating with a price target of $405/share.

Sales at restaurants open at least 13 months fell 23.6 percent in the quarter ending June 30. Since its all-time high a year ago, the stock is down more than 45%.

Insider Activity: Corporate insiders look pessimistic about the outlook of the company stock that they seem to offload shares while they have -8.63 retreated so far this year. Cleveland Research lowered Chipotle Mexican Grill from a buy rating to a neutral rating in a research note on Thursday, May 26th.

A rash of e coli outbreaks linked to tainted food landed 21 patrons in the hospital past year, and the company has struggled ever since to restore its reputation.

Pershing Square helped private-equity firm 3G Capital take Burger King public in 2012.

Biomarin (NASDAQ: BMRN) shares briefly gained more than 1 percent in extended trading after the company announced an update to its treatment program for children with a rare form of batten disease, a fatal neurodegenerative disorder which now has no approved treatments.

As per Mr. Penney, Chipotle’s “Chiptopia” loyalty program, which reward customers free food for making multiple paid visits at its stores, is considered as a “joke”. The entire restaurant industry has entered a recession, as consumers shift dollars to lower-priced grocery stores.

The analyst believes that this current environment is not suitable for Chipotle for a comeback. 12 experts consider that the stocks earnings and the quoted price is in harmony, hence, they give it a Hold rating. Baird is “unclear if Pershing will be able to add substantial value”. However, Morgan Stanley Analyst John Glass isn’t convinced. He also could have allies in Vanguard Group, the largest USA mutual fund company, which held a 9 percent stake in Chipotle at the end of June.