Chipotle has been struggling since the E. coli contamination scare started back in November 2015.
The stock tumbled more than 50% and consumer perception of the brand fell to its lowest level since 2007, according to a survey by the YouGov Brand Index.
But a note published on Tuesday by David Palmer and Eric Gonzalez’s team at RBC Capital Markets says the fast-casual restaurant should outperform over the next one to two years as the chain ramps up its digital ordering and delivery.
The team predicts a full brand recovery could “take a while” and are trimming their near-term EPS estimates to reflect a slightly lower margin, including lower-than-expected fourth quarter EPS and margin guidance.
They forecast significant EPS leverage over the next two years as the chain improves its digital ordering experience through a new interface that cuts wait times on mobile orders and incorporates the addition of a second assembly line integrated with digital ordering in all restaurants in Spring 2017.
“While bears will likely continue to say that long-term growth is going to remain muted, we believe that will depend on the success of new initiatives and ultimately the ability for Chipotle to restore pricing power,” according to the note.
RBC estimates that Chipotle’s ongoing sales decline, food safety investments and traffic initiatives will result in trough earnings this year but they are “optimistic that margins can begin to recover in 2017.”
In other news, Instinet analyst Mark Kalinowski warns that Chipotle could “bear the biggest brunt”
of President Trump’s trade war with Mexico, as the proposed 20% tariff on goods from Mexico could pose a huge problem for chains that heavily rely on Mexican imports like avocados.
The stock is up 0.39% on Tuesday afternoon at $419.56.
Chipotle is reporting 4Q earnings on February 2, 2017.
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