Chipotle Same-Store Sales Improvement Continues To Impress

Wells Fargo’s Jeff Farmer maintained an Outperform rating for Chipotle Mexican Grill, Inc. CMG, after emergence of trends supporting a recovery in the company’s SSS.

Proprietary checks in four cities - Boston, Chicago, New York and San Francisco - in the weeks of and following the free burrito promotion showed an 80 percent customer count hold. These trends are strong enough to support a recovery in Chipotle’s SSS, analyst Jeff Farmer believes.

SSS Declines To Slow

Farmer expects Chipotle to report a high-20 percent SSS decline for the six-weeks ended mid-March, with smaller SSS declines likely in the weeks following the free burrito promotion. The EPS estimate for 2016 has been reduced from $8.80 to $8.50 to reflect higher promotional costs.

The valuation range for Chipotle’s stock has been raised from $500-$530 to $580-$600. The discount relative to historical valuation is justified, given a lack of SSS visibility into 2016, additional food safety headwinds and the potential for greater-than-expected sales deleverage, Farmer commented.