Market Overview

Goldman Likes Chipotle's Long-Term Value, Sees $550 Per Share

Goldman Likes Chipotle's Long-Term Value, Sees $550 Per Share

Chipotle Mexican Grill, Inc. (NYSE: CMG) has had a rough year. With E. coli scares, a subpoena for documents regarding an earlier criminal investigation into food safety measures, spiked labor costs and a disappointing fourth quarter, the Americanized Mexican food joint has had more than its share of bad press.

However, Goldman Sachs has attempted to shed a more constructive light on the company.

The Report

Goldman Sachs' analysts wrote, "What's changed: Helped by a reversal in restricted stock accounting, CMG reported a better than expected 4Q; however, the real focus was on 2016 commentary. There were a number of negatives on the cost front […] with very little encouraging comments on the top-line front."

Related Link: Chipotle Shares Nosedive Following Bottom Line Beat

The note continued, "That said, we believe marketing initiatives can be effective relatively quickly, so, in addition to compelling longer-term valuation, the next data point (an intra-quarter sales update) can be positive."

Based upon that thesis, Goldman lowered its 2016-2018 EPS estimates from $9.69/$19.46/$24.54 to $6.68/$16.52/$21.63, lowered its 12-month PT by $50 to $550, but maintained a Buy rating on the stock.

Implications Of The Report

Goldman Sachs outlined three implications of its estimates and justifications:

  • Margins Will Be Affected: "We sense CMG sees some risk in not getting sales back sooner rather than later – this helps explain the aggressiveness of the marketing campaign and an ROI calculation that is not 1-2 quarters in nature," the report explained. "We agree spend there should be exogenous to Chipotle's issues. We also see an element of over-earning in terms of store level labor and the supply chain […] being rolled back."
  • Once Sales Trajectory Returns, The Focus Should Increase On Costs
  • The Long-Term Value Should Maintain Its Appeal: "We continue to adjust our long-term DCF for reductions in terminal margins," the company explained, "but continue to see an equity value above $630/share."

In commenting upon the firm's constructive thesis, Goldman Sachs stated, "We would become less constructive if (1) recent food safety issues remain in the press, (2) survey data shows a delayed reaction to food safety issues, or (3) we do not see the expected sales recovery post food safety."

Latest Ratings for CMG

Oct 2019MaintainsNeutral
Oct 2019MaintainsBuy
Oct 2019MaintainsMarket Perform

View More Analyst Ratings for CMG
View the Latest Analyst Ratings

Posted-In: Analyst Color Long Ideas Price Target Reiteration Restaurants Analyst Ratings Movers Trading Ideas Best of Benzinga


Related Articles (CMG)

View Comments and Join the Discussion!

79% Of Vetr Top Raters Love Amazon Stock

Profit-Taking In Alphabet Inc