Chipotle shares fell nearly 2 percent in premarket trading Friday after Morgan Stanley said the company is struggling to woo back customers six months after a string of foodborne illnesses were linked to the Mexican food restaurants.
Morgan Stanley analyst John Glass downgraded shares of Chipotle to equal weight from overweight, and slashed the company's price target to $405 from $416.63, citing the protracted recovery.
Ahead of the opening bell Friday, Chipotle shares changed hands at $410.30, down 1.84 percent.
Morgan Stanley surveyed 2,000 customers, of whom 720 ate at Chipotle, in mid- to late-June. The results of the survey suggest 13 percent of those polled say they still won't go back to the chain. That's only a modest decline from January, when an earlier poll was taken by the firm.
What's more, even among the customers who have ventured back to Chipotle, 13 percent say they opt for the restaurant less often. That means 25 percent of those surveyed say they have either stopped going to Chipotle or have reduced their frequency, Morgan Stanley said.
"The sales recovery will remain more protracted than the market believes, and possibly more costly as a result, as CMG likely needs to ramp up marketing spend to lure consumers back in," Glass said in a research note.
Glass said it could take "years" for Chipotle to return to its prior peak volumes.
Chipotle has been investing in promotions in an attempt to woo back customers. Recently, it launched a frequency-based rewards program to drive visits.
"And while comps should begin to improve in the [second half of 2016], our work has compelled us to rethink the rate of improvement and commensurate margin gains in both '16 and '17, as well as longer term," Glass said in the note.
He said that if the chain continues to struggle, and it is met with other adverse conditions such as an increase in commodity costs that can't be passed along to consumers, the "bear" case for Chipotle shares is a price target of $250.