Wall Street Is Turning Against Chipotle

Chipotle Mexican Grill, Inc. CMG's stock debuted 2016 on a sour note, hitting a new 52-week low of $447.50 on Monday. By Tuesday, some of Wall Street's top research firms provided mixed commentary as analysts at Stephens initiated coverage of the stock at Underweight while analysts at Credit Suisse maintained an Outperform rating.

Stephens: The Street Is Too Optimistic

Will Slabaugh of Stephens initiated coverage of Chipotle Mexican Grill with an Underweight rating and $425 price target and cited two major ongoing concerns.

First, Slabaugh noted that recent and upcoming investments in food safety will "reset" Chipotle's once industry-leading margins to "levels below current expectations." The analyst added that these investments are "likely to be significant" and not fully reflected in fiscal 2016 and fiscal 2017 estimates.

Second, the analyst suggested the company's same-store sales growth could "take longer to recover than many anticipate" and the once "significant" gap between Chipotle and its peers should "narrow."

Bottom line, Slabaugh acknowledged he is "optimistic" on Chipotle on a multi-year basis but earnings expectations need to be "reset" before the stock becomes "attractive."

Related Link: Oppenheimer's Bittner Downgrades Chipotle, Sees Downside To $400-$450

Credit Suisse: Focus On Long Term Potential

Jason West of Credit Suisse maintained an Outperform rating on shares of Chipotle with a price target lowered to $575 from a previous $600.

West lowered his fourth quarter same-store sales estimates to -13.2 percent from a previous estimate of -11.2 percent due to the impact of the Boston norovirus event and CDC's confirmation of E. coli outbreaks.

West added that Chipotle's same-store sales for December could be running down 30 to 40 percent in the month. As such, the analyst cut his fourth quarter earnings per share estimates to $2.59 from a previous $2.89 and slashed his full year 2016 earnings estimates to $12.95 from a previous $18.41.

However, West argued that he expects a "strong rebound" in 2017 given a combination of easy compares, improved digital capabilities, and a potential price hike that can "bolster" earnings growth in 2017 and 2018.

"We believe investors are likely to look through a weak 2016 and focus on long-term potential for the brand," West wrote. "Our conversations also suggest buy side forecasts are already well below consensus estimates, especially for 2016."

Elsewhere On The Street

On Monday, analysts at Maxim maintained a Hold rating with a price target lowered to $435 from a previous $495.

Analysts at Sterne Agee CRT also maintained a Hold rating on Monday with a price target lowered to $435 from a previous $450.