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What Everyone Is Saying About Chipotle After The Earnings Crash

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What Everyone Is Saying About Chipotle After The Earnings Crash

  • Shares of Chipotle Mexican Grill, Inc. (NYSE: CMG) plunged more than 7 percent after Wednesday's opening bell.
  • Chipotle reported its third-quarter results on Tuesday. The company earned $4.59 per share, short of the $4.63 analysts were expecting; forward looking guidance also fell short of expectations.
  • Wall Street's top analysts were mixed following the print.
  • Shares of Chipotle Mexican Grill traded sharply lower after Wednesday's market open in reaction to its third-quarter results.

    Here is a summary of what Wall Street's top analysts are saying following the print.

    Wedbush: Further Upside ‘Difficult To Achieve' Without Catalysts

    Nick Setyan of Wedbush commented in a note that while Chipotle's third-quarter earnings and same-store sales growth was in line with expectations, October's comps are now trending in line with the August and September run-rate, implying a level falling short of the third quarter.

    Setyan continued that while marketing and improved throughput could remain drivers of transaction growth in 2016, any outsized contributions "are largely behind us." The analyst noted that peak hour lunch throughput declined in the third quarter, indicating further gain "may prove difficult." In addition, gains from mobile and digital initiatives is "no sure thing" and their contribution to comp gains "remains unclear."

    Related Link: Chipotle Q3 Profit Misses Views

    Setyan further suggested Chipotle faces the risk of cannibalization as the company approaches unit saturation.

    Finally, Setyan argued that it "may be difficult" for Chipotle to see upside without any visible catalyst. In fact, the analyst suggested that should drivers of transaction growth above a mid-single-digit figure in 2016 fail to materialize, the Street may revise their current earnings per share expectations.

    Shares remain Neutral rated with a price target lowered to $700 from a previous $740.

    Credit Suisse: Buy The Dip

    Jason West of Credit Suisse commented in a note that Chipotle continues to provide "one of the best combinations" of new unit growth (12 percent year-over-year growth) and returns (approximately 70 percent cash ROIs) within the restaurant group.

    West continued that he sees "significant opportunity" around mobile and online ordering, which so far only represents seven percent of sales. The company has recently hired its first ever CIO and will oversee a "much-improved" pre-order and pick-up functionality that could be a "meaningful" driver of same-store sales growth over the coming quarters.

    Finally, West stated that buying the stock following dips "has been a good strategy in this name over time."

    Shares remain Outperform rated with an unchanged $750 price target.

    Barclays: ‘No Line Of Sight' Heading Into 2016

    Jeffrey Bernstein of Barclays commented in a note that the focus of Chipotle's report was its comp trends.

    Bernstein noted that fourth-quarter comps are "seeing a similar trajectory" to September's "modest" gains. As such, while investors "want to believe" that the company's initial low-single-digit comp guidance will prove to be conservative, there is "no line of sight" into the next key accelerator of growth.

    Bernstein added that it is "difficult" to assume an expansion in the stock's multiple from its current "elevated" levels, and investors shouldn't expect any near-term outperformance. Nevertheless, the company is still the "best growth story" in restaurants, but shares are now "fairly valued" at 33x forward earnings versus the 23-47x three year range and 36.5x average.

    Shares remain Neutral rated with a price target lowered to $660 from a previous $685.

    Deutsche Bank: ‘Some Good, Some Bad And Some Question Marks'

    Karen Short of Deutsche Bank noted there were a number of positive and negative take-aways from the quarter.

    On the positive front, Chipotle opened more units than expected and same-store sales started off on a "positive note" with July same-store sales accelerating from the second quarter. On the other hand, the company saw its peak-hour lunch throughput decline, August and September same-store sales "slipped" from July and October's same-store sales "remain choppy."

    Karen added that while cost of goods (COGS) remains a "driving force" in support of its industry-leading restaurant margins, labor continues to be a "choke point" to its results. At the same time, the company is "not immune" to ongoing competitive issues.

    Shares remain Hold rated with an unchanged $710 price target.

    Elsewhere On The Street

  • Analysts at Bank of America maintained a Buy rating with an unchanged $750 price target.
  • Analysts at Morgan Stanley maintained an Overweight rating with a price target lowered to $720 from a previous $749.
  • Analysts at Oppenheimer maintained an Outperform rating with a price target lowered to $750 from a previous $775.
  • Analysts at Piper Jaffray maintained an Overweight rating with a price target lowered to $737 from a previous $764.
  • Analysts at Sterne Agee CRT maintained a Buy rating and unchanged $766 price target.
  • Image Credit: By Miosotis jade (Own work) [CC BY-SA 3.0], via Wikimedia Commons

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