Chipotle's Turnaround Is 'Underway,' But Stephens Is Neutral Until Traffic Improves

Fast casual food chain Chipotle Mexican Grill, Inc. CMG reported first-quarter results Wednesday that confirmed a turnaround is "underway," but now is not the time to buy the stock, according to Stephens.

The Analyst

Stephens' Will Slabaugh maintains an Equal-Weight rating on Chipotle Mexican Grill with a price target lifted from $285 to $350.

The Thesis

Chipotle's adjusted EPS of $2.13 was "easily ahead" of Slabaugh's estimate of $1.81 per share, which the company attributed to lower marketing costs and cost of sales that offset a higher tax rate, the analyst said in a Thursday note. Stephens is attributing the encouraging top-line print to a "fairly aggressive" menu price increase of 4.9 percent that helped counter a 3.3-percent decline in traffic.

Chipotle also benefited in the quarter from continued contributions from queso and, to a smaller degree, the company's growth in initiatives including digital, delivery and catering, Slabaugh said. Recently appointed CEO Brian Niccol offered a glimpse of his vision to turn around the restaurant brand, which Slabaugh said is "encouraging" in the long term. 

Chipotle did see declining traffic in the quarter, which should keep investors "somewhat concerned" with traffic trends moving forward, Slabaugh said. The chain must show signs of improving traffic before investors can become "more positive" on the stock, he said.

Price Action

Shares of Chipotle Mexican Grill were soaring by 18.5 percent at the time of publicatino to $402.51. 

Related Links:

Making Sense Of A $500 Price Target On Chipotle Shares

Stifel Sees Reboot Opportunity For Chipotle, Upgrades From Sell To Hold

Photo courtesy of Chipotle. 

Posted In: Brian Niccolfast casual foodQuesoStephensWill SlabaughAnalyst ColorPrice TargetReiterationRestaurantsAnalyst RatingsGeneral