Goldman Sachs Removes Chipotle Mexican Grill (CMG) from Conviction Buy List, Cut to Neutral

July 20, 2012 7:09 AM EDT
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Price: $405.20 -0.9%

Rating Summary:
    15 Buy, 19 Hold, 8 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 30 | Down: 30 | New: 23
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Goldman Sachs downgraded Chipotle Mexican Grill (NYSE: CMG) from Conviction Buy List to Neutral following earnings after the close. The firm also cut its price target from $475 to $365. While EPS beat, the company missed revenue and SSS expectations and the underlying composition of CMG's results was weak, the firm said.

"Traffic growth fell from its prior trajectory and new unit productivity meaningfully decelerated," the analyst also notes.

Goldman said CMG is now flashing two of three warning sign: (1) moderating traffic, (2) lower new unit productivity and (3) stagnating ROIC.

"The quick onset and the magnitude of the decelerations have taken us by surprise, and therefore we have reevaluated our bullish stance."

(1) Traffic growth slowed to 3.4% in 2Q12 from the prior 6%-8% run rate. Management attributed the slowdown to choppiness in the macro but also referenced increased competitive promotional activity.

(2) New unit productivity dropped from a 90%-95% run rate to 82% in the most recent quarter, a level not seen since the 2008-2009 recession.

Goldman lowered 2012E/2013E/2014E EPS to $9.26/$11.49/$13.71 to reflect more modest SSS, lesser new unit productivity, and reduced fixed-cost leverage.

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 $403.86 yesterday.

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