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Shares of Chipotle (CMG - Free Report) opened lower—and sunk as much as 3% in early morning trading—on Monday after analysts from Wedbush downgraded the stock and slapped the fast casual Mexican chain with a bearish price target.
Citing heightened concerns about near-term same-store sales growth and margin expectations, Wedbush lowered its rating for Chipotle to underperform from neutral. The firm also issued a $445 price target for the stock, which represents a downside of about 14.5% from Friday’s close.
Wedbush’s proprietary checks suggest that Chipotle’s third-quarter comps growth is trending below the 5.7% consensus estimate, according to a note from the firm’s Nick Setyan.
This trend is of particular concern to Setyan because Q3 should have an easier comparison ahead of last September’s queso launch. The analyst speculated that the slowdown might have been caused by a foodborne illness outbreak in Ohio.
Looking further ahead, Setyan said that Wall Street’s estimate of 4.2% comps growth for the restaurant chain in fiscal 2019, while “not unreasonable,” might not be properly factoring in a number of risks, including a declining effect from menu price increases and a more favorable sales mix.
Setyan also argued that new Chipotle chief executive Brian Niccol’s compensation package might not be as bullish of an indicator as some investors have hoped. The package is based on hitting several financial targets in 2020, such as $20 in earnings per share, same-store sales growth of more than 6.5%, and a restaurant-level margin of at least 21%.
But Setyan said that Niccol will be well compensated regardless of whether these targets are met, making them not “as meaningful of an incentive as some bullish investors may believe.”
Setyan’s note put Chipotle shares on track for a rare down day in the midst of what has been an impressive run for the stock, which is up more than 63% in the past six months. Still, the analyst is hardly alone in being concerned about expectations for the remainder of fiscal 2018 and fiscal 2019.
In fact, Chipotle has witnessed nine negative revisions to its full-year 2018 earnings estimates within the last 60 days, with six negative revisions to its full-year 2019 estimates also coming in that time. This compares to six and seven positive revisions, respectively, for those fiscal periods within the same timeframe.
Nevertheless, Chipotle sports a Zacks Rank #3 (Hold) and an “A” grade in the Growth category of our Style Scores system. Based on our current consensus estimates, we expect Chipotle to notch earnings growth in excess of 30% this year and 39% next year.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeneyon Twitter!
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Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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Why Did Chipotle (CMG) Stock Open Lower Today?
Shares of Chipotle (CMG - Free Report) opened lower—and sunk as much as 3% in early morning trading—on Monday after analysts from Wedbush downgraded the stock and slapped the fast casual Mexican chain with a bearish price target.
Citing heightened concerns about near-term same-store sales growth and margin expectations, Wedbush lowered its rating for Chipotle to underperform from neutral. The firm also issued a $445 price target for the stock, which represents a downside of about 14.5% from Friday’s close.
Wedbush’s proprietary checks suggest that Chipotle’s third-quarter comps growth is trending below the 5.7% consensus estimate, according to a note from the firm’s Nick Setyan.
This trend is of particular concern to Setyan because Q3 should have an easier comparison ahead of last September’s queso launch. The analyst speculated that the slowdown might have been caused by a foodborne illness outbreak in Ohio.
Looking further ahead, Setyan said that Wall Street’s estimate of 4.2% comps growth for the restaurant chain in fiscal 2019, while “not unreasonable,” might not be properly factoring in a number of risks, including a declining effect from menu price increases and a more favorable sales mix.
Setyan also argued that new Chipotle chief executive Brian Niccol’s compensation package might not be as bullish of an indicator as some investors have hoped. The package is based on hitting several financial targets in 2020, such as $20 in earnings per share, same-store sales growth of more than 6.5%, and a restaurant-level margin of at least 21%.
But Setyan said that Niccol will be well compensated regardless of whether these targets are met, making them not “as meaningful of an incentive as some bullish investors may believe.”
Setyan’s note put Chipotle shares on track for a rare down day in the midst of what has been an impressive run for the stock, which is up more than 63% in the past six months. Still, the analyst is hardly alone in being concerned about expectations for the remainder of fiscal 2018 and fiscal 2019.
In fact, Chipotle has witnessed nine negative revisions to its full-year 2018 earnings estimates within the last 60 days, with six negative revisions to its full-year 2019 estimates also coming in that time. This compares to six and seven positive revisions, respectively, for those fiscal periods within the same timeframe.
Nevertheless, Chipotle sports a Zacks Rank #3 (Hold) and an “A” grade in the Growth category of our Style Scores system. Based on our current consensus estimates, we expect Chipotle to notch earnings growth in excess of 30% this year and 39% next year.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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