Chipotle Shares Have More Upside Than Downside; JPMorgan Raises Target To $510

Shares of Chipotle Mexican Grill, Inc. CMG have plunged from above $530 in early March 2016 to below $450 on April 13. JPMorgan’s John Ivankoe upgraded the rating for the company from Neutral to Overweight, while raising the price target from $465 to $510.

Chipotle’s current stock valuation does not reflect the prospects of an earnings recovery, analyst John Ivankoe mentioned.

Comps And Profitability Set To Improve

Ivankoe expects Chipotle’s comps to improve sequentially, after having bottomed in 1Q16. He added that the The company’s F17 EPS could be almost similar to the FY14 levels, implying that the food safety crisis had a negative impact on earnings.

“We believe short-term results will continue to be challenged, and we model 2Q16 comps of -15% vs the -27.9% expected in 1Q16 which includes -36.4% in January, -26.1% in February, -24.4 for the first two weeks of March and we assume down high-teens for 2H March,” the JPMorgan report stated.

The analyst believes that investors may be largely overlooking FY16, and instead focusing on the sequentially improving comp trend.

Chipotle continues to be a highly meaningful brand that can regain customer trust over time, Ivankoe commented. He expects Chipotle to return to normal earnings growth by FY18, after nearly doubling in FY17, and believes that the company would be able to sustain 20 percent EPS growth through at least FY20.