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Here's Why Chipotle Is 'Attractive Over Any Longer-Term Investment Horizon'

Here's Why Chipotle Is 'Attractive Over Any Longer-Term Investment Horizon'
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  • Chipotle Mexican Grill, Inc. (NYSE: CMG) shares are down 22 percent in the last three months, even after hitting a high of $750 on October 13.
  • Bernstein’s Sara H. Senatore maintained an Outperform rating on the company, while reducing the price target from $795 to $730.
  • While E. Coli news weighs on outlook and may cause near-term volatility, the company’s stock appears attractive for the long-term, Senatore said.

Chipotle reported its 4Q comp guidance at -8 to -11 percent, which is below the Bernstein and Street estimates of -4 percent. Repeated media coverage around E. Coli has adversely impacted comps.

“Both the initial media coverage of the outbreak at stores in the Pacific Northwest, and the subsequent coverage of the widening impact in late November led to immediate comp retrenchments of ~20%,” analyst Sara Senatore wrote. She added that comps recovered more rapidly shortly after the first media cycle, which reflect concerns over the issue not being limited to the Pacific Northwest.

Senatore commented further that although the cumulative impact of repeated E. Coli news had been severe, intra-quarter trends indicated that “a recovery trajectory will emerge in time.”

Chipotle's current 4Q guidance indicates no improvement in December from the average comp of -16 percent recorded in November. In case there is no further negative news, this outlook could prove “somewhat conservative.”

The analyst said that Chipotle's Board of Directors had approved additional share buybacks of $300 million. This is in addition to the $155 million remaining from the previous authorization as of the end of 3Q.

“We believe Chipotle has been buying back stock more aggressively following its earnings release and would expect a faster rate still in the aftermath of last week's release – likely exceeding the $100 mm CMG used to repurchase shares in 2Q15 (average price of $620/share),” the Bernstein report added.

Although volatility could continue in the near term, the company’s stock appears to be attractive over any longer term investment horizon. While estimates could be lowered in the near term, “historically investors have looked through to recovery and more normalized comps during periods of foodborne illness scares,” Senatore pointed out.

Latest Ratings for CMG

May 2018ArgusUpgradesHoldBuy
Apr 2018Maxim GroupDowngradesBuyHold
Apr 2018BMO CapitalMaintainsMarket PerformMarket Perform

View More Analyst Ratings for CMG
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