Credit Suisse Warns Of Near-Term Disappointment Risk At Chipotle, Cuts Target To $475

Credit Suisse’s Jason West maintained an Outperform rating for Chipotle Mexican Grill, Inc. CMG, while raising the price target from $475 to $550. He said that improved traffic suggested that customers are willing to give the brand a second chance, supporting a recovery in the long term.

Although Chipotle’s aggressive promotional efforts boosted traffic in recent weeks, this was “at the expense of "real" sales,” analyst Jason West said. Consensus expectations for 1Q are for a decline of 25 percent, implying a decline of about 20 percent for February and March combined.

West mentioned that Chipotle is unlikely to achieve “this level of sequential improvement from Jan (-36%) given the impact of couponing.” The 1Q SSS estimate has been reduced from a decline of 25 percent to a decline of 30 percent, which incorporates SSS contraction of about 30 percent in Feb about 25 percent in March.

The Good News

Although there is risk of a near-term disappointment, the SSS shortfall may be partly offset by improvement in underlying traffic trends, West commented. He added, “Our proprietary CS online sentiment tracker (NetBase), as well as our analysis of Google Trends, suggests early signs of a positive shift in sentiment towards CMG.”

The increase in traffic at Chipotle suggests that customers are “willing to give the brand another try and gives us higher confidence in the recovery scenario baked into our model,” the Credit Suisse report added.