Wunderlich Securities Cautious On Chipotle Mexican Grill Ahead Of Earnings

Robert Derrington of Wunderlich Securities on Monday commented in a note that despite encouraging macro trends investors should maintain a cautious tone on Chipotle Mexican Grill, Inc. CMG ahead of its fourth-quarter print on Tuesday.

Shares are Hold rated with a price target raised to $760 from a previous $660.

Derrington expects the company to report fourth-quarter same-store sales of 17.0 percent and earnings per share of $3.76. This compares favorably to prior estimates of 16.0 percent and $3.65 given improvements in consumer spending, declines in gas prices and increased resonance of the ongoing Food With Integrity theme. Revenue is projected to grow 28.1 percent from a year ago to $1.0812 billion.

Looking forward to fiscal 2015, Derrington expects that the company does not take incremental menu pricing and that following 2014's strong same-store sales, trends are likely to decelerate through 2015, from up 12 percent in the first quarter to up only 3 percent to 4 percent in the third and fourth quarter. The analyst also notes that COGS are expected to improve modestly to 33.9 percent from 34.5 percent in 2015 with beef, dairy, avocados and lettuce adding near-term pressure.

Bottom line, Derrington states that given the company's strong, yet decelerating trends and a “slippery slope” of decelerating revenue and earnings per share growth likely in 2015, investors should remain cautious and seek a more attractive entry point.