Does Chipotle's Valuation Already Reflect Improvements From Q1?

Chipotle Mexican Grill, Inc. CMG — which has battled E. coli and norovirus outbreaks, and now a cybersecurity breach — had a better-than-expected first quarter, according to Jefferies analysts.

Analyst's Take On Q1 Print

While Jefferies maintains an Underperform on Chipotle, analyst Andy Barish raised the price target on the stock from $300 to $350 Tuesday and noted that same-store sales jumped 17.8 percent at the fast-casual restaurant chain in Q1.

Chipotle reported Q1 sales of $1.07 billion on Tuesday, beating estimates by a slim $20 million margin.

Jefferies’ investment thesis on Chipotle sees margins recovering in 2017, Barish said, but still falling beneath the 20 percent target due to inadequate sales leverage to offset increased food, labor and digital costs. The analyst projects Chipotle will end the year with 11-percent single-store sales growth.

Chipotle’s guidance for 2017 indicated the Denver-based chain would focus on simplifying and improving operations, creative marketing to rebuild its brand and further rollout of digital sales efforts.

Jefferies’ estimates for Chipotle remain unchanged.

“In spite of [a] better Q1, [it’s] tough to tell underlying same-store sales/margin trends, and we remain conservative with little change to our thoughts,” Barish said in the note. Jefferies’ $8 EPS estimate for 2017 is unchanged, and the firm slightly adjusted its 2018 EPS estimate from $10.73 to $11.

Payment Breach Announced Alongside Earnings

Chipotle’s payment processing network for restaurant purchases may have been compromised between March 24 and April 18, the company said in a statement. Chipotle said it began an investigation with cybersecurity firms, law enforcement and its payment vendor once the unauthorized activity was detected. The company said it believes the unauthorized activity has been stopped.

“We anticipate providing notification to any affected customers as we get further clarity about the specific timeframes and restaurant locations that may have been affected,” the company said in the statement.

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