Chipotle's Unit Economics Means It's 'When' Not 'If' Things Improve

Piper Jaffray's Nicole Miller Regan maintained an Overweight rating on Chipotle Mexican Grill, Inc. CMG, while raising the price target from $479 to $590.

"Despite currently (and severely) negative same-store sales trends of late, we remain confident that the underlying unit-level economics of the business are solid," Regan said, while adding that leverage existed for the company, "when" (not "if") trends improved.

Pointing out that store-level engagement continued to be robust, the analyst mentioned that "human capital" would play a significant role in Chipotle Mexican Grill's recovery, with store-level employees continuing to champion the brand.

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"Globally, restaurateurs are engaged on a local basis, which should yield consistent LT development (whether domestic or int'l) and help support growth of the core Chipotle brand and/or the company's burgeoning portfolio of secondary growth concepts," according to the Piper Jaffray report.

According to Piper Jaffray's annual Benchmark Book analysis for 2015, an average fast-casual operator generated cash on cash return of 41 percent, based on a segment AUV of $1.9 million and segment SLM of 21 percent.

"As CMG had fewer shares o/s, a proj. 1% comp change should equate to an incremental $0.38 in EPS when trends return to positive territory," the analyst added.