CREDIT SUISSE: Queso is 'not a silver bullet' for Chipotle

Chipotle Test Kitchen 6Hollis JohnsonQueso at Chipotle’s test kitchen in New York City

Queso could be coming to Chipotle as soon as two weeks from now, analyst Jason West of Credit Suisse predicts.

The fast casual Mexican chain first announced the cheesy side last month, along with cutting its pork chorizo and refreshing its drink line as it struggles to rebound from massive sales declines following multiple E. coli outbreaks.

“Our store checks indicate that CMG is planning a national launch of queso on September 12,” West wrote in a note to clients Tuesday morning. “Recall this product has been in test in ~350 restaurants (~15% of the chain) in California and Colorado since August 1. Management had indicated that the product could be launched as soon as mid-September nationally if the tests went well.”

Business Insider has reached out to Chipotle about the September 12 prediction. Management has not previously announced a date for the highly-anticipated launch.

Whenever it launches, Credit Suisse predicts the new side might “move the needle on sales,” but is “not a silver bullet.”

“We believe queso could provide a ~1-3% bump to CMG’s sales trends, though this is difficult to gauge until the product is fully launched,” writes the bank. “Our 1-3% sales lift assumes ~25% of customers add queso, with about one-half of those add ons cannibalising guacamole. We note that an add-on of guacamole costs ~$US2, while an add-on of queso costs ~$US1.25.”

Credit Suisse maintains its neutral rating on Chipotle’s stock, with a price target of $US320, roughly 2.6% above Tuesday’s opening share price.

Experimentation is relatively new for the Colorado-based chain. After decades of leaving the menu virtually unchanged, the company has been ramping up new product experimentation. Earlier this year, Chipotle opened its first test kitchen that’s open to the public in New York City.

But so far, the new items haven’t turned around Chipotle’s falling share price. Shares today are priced at less than half of their $US758.61 peak in August 2015, according to Bloomberg.

“Despite a potential sales lift from queso, we remain cautious on CMG’s stock as the company is struggling with a brand turnaround in the face of an oversupplied fast casual market and rising labour costs,” writes Credit Suisse.

“These pressures could continue to lead to sales disappointment and diminished pricing power in coming quarters, even if queso provides a lift.”

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