Why Barclays Thinks Chipotle Is An 'Anomaly'

Chipotle Mexican Grill, Inc. CMG was down sharply in Wednesday's pre-market trading, falling more than 5 percent after disappointing earnings results. Barclays said that this should be viewed as an opportunity, calling Chipotle "the best growth story in restaurants." Even more critically, Barclays said that the "next leg(s) of growth [are] identified," meaning that "unit growth is sustainable."

Yet, Barclays warned that "outsized growth is not sustainable." The analysts said they expect key metrics, like Chipotle's comps, to continue to decelerate through 2015. The slowing will be led by slowing traffic growth and more modest pricing, according to the forecast. Ultimately, that leaves Chipotle subject to slower EPS growth.

Chipotle is nevertheless an "anomaly, with strength supporting the outsized multiple." Barclays put a $685 price target on the shares – basically expecting that shares will erase all of today's 5 percent decline within the next 12 months. The analysts said that the bull case could see the price rise to $790, more than 20 percent gains from pre-market levels. On the downside, shares could slip to $495 – a 24 percent decline – if comps decelerate further and multiples collapse.

This roughly balanced risk/reward underpins Barclays Equal-Weight rating. The $685 price target reflects a 33x Barclays revised 2016 EPS estimate of $20.70. Barclays prior price target was $730.

Over the past 52 weeks, Chipotle traded in a range of $472 to $728. The stock, as of Tuesday's closing price, has gained 1.1 percent year to date. This year, Chipotle hit a low of $648.