UBS Reiterates Buy Rating on Chipotle Mexican Grill (CMG), Sees Likelihood of Starbucks Transaction as 'Somewhat Low'

UBS analyst Dennis Geiger reiterated a Buy rating and $45.00 price target on Chipotle Mexican Grill (NYSE: CMG).

The analyst commented, "The Financial Times reported that Starbucks has worked with advisers in recent months to evaluate a potential acquisition of Chipotle. Separately...another industry source indicated Chipotle had engaged bankers to help defend against a potential transaction. In response, reports noted Starbucks indicated it doesn't comment on rumors and speculations, but that the brand remains laser focused on executing against the 'Back to Starbucks' strategy given ongoing momentum and long-term growth potential. Although details remain limited, reports of a potential acquisition surprised us, and we view the likelihood of a transaction as somewhat low. We believe an acquisition could potentially divert focus from continuing to execute the 'Back to Starbucks' turnaround plan. We believe investors are primarily focused on restoring traffic, improving profitability, and accelerating earnings growth at the core Starbucks business. Based on our preliminary estimates, we believe the transaction to be dilutive from an EPS perspective, but could get to just modestly dilutive depending on purchase premium, synergies, and the balance of equity / debt used in a deal.Additionally, we do not believe CMG is a likely acquisition target for other industry participants.Our view is that potential interest in CMG from CEO Niccol & SBUX represents a favorable signal that the brand may not be structurally challenged, and that notable upside potential exists from opportunities to strengthen results."

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 $31.59 yesterday.

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