RBC Cuts Chipotle Mexican Grill (CMG) EPS By ~15%

RBC Capital maintains Outperform on Chipotle Mexican Grill (NYSE: CMG) price target of $465.00.

Analyst David Palmer hacks his 2017 EPS estimate from $10.03 to $8.67. He comments "We are lowering our 2017e EPS estimate from $10.03 to $8.67 as we believe the slower sales recovery makes the company's $10 EPS target more of an aspirational goal. While it is unclear whether the company will achieve $10 EPS this year, we believe earnings leverage in the medium to long term could be substantial as the brand recovery continues and as the chain leverages labor through digital capabilities and improvements to the second make line. Accordingly, we are lowering our 2017 SSS growth estimate from 9.75% to 8.5% (cons. 7.4%) and we assume lower company restaurant margins of 19.1% (cons. 19%). Our $465 price target equates to 37x our 2018 EPS estimate of $12.48 (+44% YOY; cons. $12.27)."

He further comments on the lack of a rebound in the quality and healthiness scores used to show, well, just how high quality CMG food is and how healthy it is.

To wit (emphasis added by us): "Among the highest volume quick service restaurant chains it appears that three attributes—quality, taste and affordability—are a “must”. Before the health scare, Chipotle was significantly above the fast casual peer average in these big three attributes. While Chipotle’s positive affordability gap to peers sustained through the crisis, Chipotle’s quality and taste scores fell significantly, converging with the fast casual averages. Hearteningly, Chipotle’s taste scores have begun to rebound nicely in recent quarters, which may be a sign of some brand recovery. However, quality scores remain stubbornly in line with peers—a sign that a full brand recovery could take a while. Separately, we note that convenience scores have improved lately. This may be for the wrong reasons—shorter lines after the crisis. In the quarters ahead, we will be watching to see if convenience scores improve with improved mobile ordering and offsite order fulfillment capabilities."

(chart data: Reuters Eikon)

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 $417.95 yesterday.

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