Analyst Sees Downside in Chipotle (CMG); Taco Bell (YUM) Eating Its Lunch

January 3, 2013 7:41 AM EST Send to a Friend
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Price: $615.78 +0.95%

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Analysts at Jefferies think Chipotle Mexican Grill (NYSE: CMG) is faces significant competition from Taco Bell. This combined with flat industry trends cold lead to more challenges at Chipotle and risk to Q4 EPS.

"Following details from YUM! Brand’s (NYSE: YUM) recent analyst day in regards to Taco Bell, we are increasingly concerned that this large Mexican QSR competitor will attract incremental traffic, thereby driving marginal customers away from Chipotle," said analyst Andy Barish.

The concerns leads Barish to view CMG as overvalued at current levels and he sees risk to comp trends, margins and EPS which could pressure the stock.

"It appears as if mid-single-digit SSS may be needed to protect margins in the current environment of +3-5% commodity cost inflation, and we don’t see that as likely at CMG," concluded Barish.

While growth is still possible at CMG, Jefferies foresees a tough 4Q and thinks overall expectations need to be reset.

Jefferies has an Underperform rating on Chipotle Mexican Grill (NYSE: CMG) with a price target of $215.00.

For an analyst ratings summary and ratings history on Chipotle Mexican Grill click here. For more ratings news on Chipotle Mexican Grill click here.

Shares of Chipotle Mexican Grill closed at $301.06 yesterday.


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