Chipotle Mexican Grill (CMG) Downgraded to Underperform at Jefferies
Jefferies downgraded Chipotle Mexican Grill (NYSE: CMG) from Hold to Underperform with a price target of $350.00 (from $390.00).
Jefferies analyst, Andy Barish, is not jumping on the Chipotle turnaround bandwagon. Before the food safety issue, the analyst had been expecting a mean reversion for the multiple and this additional pressure on SSS makes him even more cautious.
The recovery from food safety issues is unprecedented in today's world of instant social media and fickle Millennial consumers who can love a brand for its "Food with Integrity," but will quickly (and maybe permanently) depart for newer concepts when that integrity is questioned. Proprietary survey work in recent weeks reinforces this view and we believe the SSS and EPS ramp will be slower than expected leading to SSS/EPS ests being closer to reality than a still somewhat "bullish" Street.
There may be a bottoming of SSS trends, but we don't believe the l-t implications of CMG's challenges have been reflected in the stock, estimates and valuation, all of which we expect to gravitate lower towards our assumptions. Feb SSS were disappointing even with massive promotional food giveaways, and our survey work indicates a negative directional lean to response rates and intent to return, putting added pressure on CMG to continue to aggressively promote during '16. This appears, from yesterday's release, to also be coming with higher costs related to food testing and waste, marketing and promos and deleverage along other labor lines.
Mr Barish's price target was only reduced from $390 so the capitulation today was in the rating, not the sentiment.
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 $500.35 yesterday.