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Maxim Group Says Chipotle Has 'Enviable Position' Among Restaurant Stocks

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Maxim Group Says Chipotle Has 'Enviable Position' Among Restaurant Stocks
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Fast casual chain Chipotle Mexican Grill, Inc. (NYSE: CMG) boasts an "enviable position" compared to its large-cap restaurant peers, according to Maxim Group.

The Analyst

Analyst Stephen Anderson upgraded Chipotle Mexican Grill from Hold to Buy with a price target lifted from $500 to $510.

The Thesis

The restaurant sector faces two ongoing headwinds that have created some weakness in the sector, Anderson said in the Tuesday upgrade note. (See his track record here.)

They are: 

  • Concerns from China, which is showing signs of a macroeconomic slowdown.
  • Rising interest rates.

Chipotle is mostly isolated from these two headwinds given its 99-percent exposure to the U.S. market and zero debt on the balance sheet, Anderson said. The company is less susceptible to concerning headwinds that affect the broader restaurant market, he said.

The stock has lost nearly 20 percent since peaking in August and is now trading at 31.8 times 2019 estimated EPS and 25.5 times 2020 estimates, he said. Both of these figures fall in the low end of Chipotle's long-term range.

Maxim Group's $510 price target is based on 30 times the firm's estimated 2020 EPS and corresponds to a forward EV/EBITDA ratio of 15.1 times, which also represents a discount to its five-year — and pre-food safety crisis — average of 17.2 times.

Q3 Preview

Chipotle is scheduled to report third-quarter results Thursday morning and is expected to earn $2.35 per share versus a consensus estimate of $2.02 per share, Anderson said. The company is up against a "relatively easy" year-over-year comparison and likely benefited from limited-time offers of free guacamole and the return of chorizo to the menu, he said. 

The company should show 5.5-percent comp growth in the quarter and benefit from lower chicken, pork and avocado costs, the analyst said. 

Price Action

Chipotle Mexican Grill shares were up 0.58 percent at $434.52 at the time of publication Tuesday. 

Related Links:

RBC: Buy Chipotle Ahead Of Expected 'Lackluster' Q3 Report

Wells Fargo Raises Restaurant Price Targets Ahead Of Q3 Reports

Photo by CW221/Wikimedia. 

Latest Ratings for CMG

DateFirmActionFromTo
Oct 2018CitigroupMaintainsBuyBuy
Oct 2018Wells FargoMaintainsMarket PerformMarket Perform
Oct 2018BarclaysMaintainsEqual-WeightEqual-Weight

View More Analyst Ratings for CMG
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