Jefferies' Big Call: Exit Chipotle Stock, It's Worth Just $350

Jefferies’ Andy Barish downgraded the rating on Chipotle Mexican Grill, Inc. CMG from Hold to Underperform, while lowering the price target from $390 to $350.

Turnaround Could Take Time

Following the almost 29 decline in the company’s February same store sales, despite aggressive promotions, as well as Jefferies’ proprietary survey, Barish believes that Chipotle Mexican Grill’s turnaround efforts are likely to take longer and cost more than earlier expected.

“We believe the recovery from food safety issues is unprecedented in today's world of instant social media and fickle Millennial consumers who can love a brand for its "Food with Integrity," but will quickly (and maybe permanently) depart for newer concepts when that integrity is questioned,” Barish pointed out.

This view is reinforced by the proprietary survey, suggesting that same store sales and EPS would both be slower than expected to ramp, which makes the consensus expectations appear “bullish.”

Expectations Will Come Down

Barish also believes that the long term implications of the challenges faced by the company are not yet reflected in the stock or the expectations, which are likely to edge lower going forward.

In addition, the company is likely to have to incur higher costs associated with food safety and waste, marketing and promotions and deleveraging “other labor lines.”

Barish now expects 1Q same store sales to decline 30 percent, from the earlier expectation of a 25 percent decline.