Definition Of 'Contrarian'? Analyst Upgrades Chipotle Despite Renewed Headline Risk

A contrarian call is a trading strategy of making an investment decision in contrast to the sentiment prevailing then.

Since news emerged that Chipotle Mexican Grill, Inc. CMG was forced to temporarily shut down its Sterling, Virginia restaurant after several customers reported of sickness, with symptoms pointing to possible norovirus contamination, Wall Street analysts have been busy pressing the downgrade button.

However, Telsey Advisory Group upgraded the stock from Market Perform to Outperform, and maintained its price target at $440.

"As the company's operating trends continue to strengthen, we believe the potential for upside to our estimates rises, fueling CMG to our PT of $440.00," the firm said.

See Also: Wall Street Isn't Happy With Chipotle's Latest Food Safety Scare

The Rationale

Analyst Bob Derrington and Ben Flox believe the pullback in Chipotle's stock has tipped the risk/reward in its favor. The stock closed Tuesday down 4.3 percent after being down as much as 7.5 percent.

Tesley, however, believes the company's sales and traffic would continue to be impacted by such incidents. However, the firm sees upside potential to its raised 2018 estimates, as the company capitalizes on more aggressive menu innovation, including Queso, margaritas, salads etc and technology innovation.

Citing the norovirus outbreak, the firm said consumers will now be wary of eating out. Accordingly, the firm trimmed its 2017 revenues and earnings per share estimates for Chipotle.

That said, the firm raised its 2018 estimates, premised on less drag from this incident in early 2018 and the management's more aggressive sales and menu innovation.

At time of writing, Chipotle's shares were down 1.98 percent to $367.65.

Posted In: Bob DerringtonTelsey Advisory GroupAnalyst ColorUpgradesAnalyst Ratings