Chipotle Shares Pick Up Another Bear

Chipotle Mexican Grill, Inc. CMG shares were the target of yet another negative sell-side rating Tuesday morning, this time from Stephens' Will Slabaugh.

The analyst initiated coverage on the maker of so-called Mexican food with an Underweight rating and a $425 price target. Slabaugh's argument was simple but to the point: "the Street remains too optimistic on the near-term earnings potential" of the company.

Two major concerns were highlighted by Slabaugh.

• "Recent and upcoming investments in food safety, people, training, and food/supply chain will reset CMG's industry-leading margins to levels below current expectations,"
• "Same-store sales growth could take longer to recover than many anticipate, which could collectively pressure earnings."

Chipotle will report a 10 percent decline in fourth-quarter same-store sales and EPS around $2.55, according to Slabaugh, largely inline with the current analyst consensus estimate of $2.56. The analyst's estimate for FY16, however, sits markedly below the Street's consensus: $14 versus $16.21, respectively.

"Despite our cautious stance in the near term, we maintain an optimistic multi-year view, given CMG's opportunities to continue to very profitably grow its store base, dramatically increase its digital presence/functionality, and improve throughput," Slabaugh said.

With the last trade in Chipotle shares Tuesday morning at $450 even, Slabaugh's new price target represents potential downside of about 6 percent.