Chipotle's March Update Scared Investors, But It's Not Swaying Piper Jaffray

Piper Jaffray’s Nicole Miller Regan maintained an Overweight rating on Chipotle Mexican Grill, Inc. CMG, with a price target of $590.

Positive Trends

Regan reiterated a bull stance on the stock, following the company’s recent announcement regarding the 1Q16 trends.

While still early, the analyst expects Chipotle Mexican Grill to be able to achieve fairly steady improvement in same store sales trend through the year.

“We maintain that leverage exists "when" (not "if") trends improve as the underlying unit-level economics of the business remain solid despite currently (and severely) negative same-store sales trends,” Regan mentioned.

1Q16 Sales

Regarding the 1Q16 trends, the company announced a steady improvement in same store sales from the decline of 36.4 percent in January to 26 percent in February and 21.7 percent in the first week of March.

“Bears will likely point to trends pulling back to (27.3%) in the second week of March however we remain encouraged by the overall improvement in trends,” according to the Piper Jaffray report.

Regan also expressed confidence in Chipotle Mexican Grill’s ability to execute at the store level and drive customer re-engagement.

The company also provided an update on its restaurant level margins for 1Q16, which are now expected in the mid-single digit range, driven by higher marketing and promotion spend and higher than anticipated food and labor costs.