Chipotle Has A New Game Plan: Is Wall Street On Board?

Casual fast food restaurant chain Chipotle Mexican Grill, Inc. CMG on Wednesday detailed a new game plan, including closing 65 underperforming stores, a focus on the customer experience  and food innovation.

Are Street analysts on board with the company whose stock remains notably lower from its peak of around $750 in 2015?

The Analysts

  • Oppenheimer's Brian Bittner maintains a Perform rating on Chipotle with no assigned price target.
  • Canaccord Genuity's Lynne Collier maintains Chipotle at Buy, price target lifted from $425 to $500.
  • Raymond James' Brian Vaccaro maintains Chipotle at Market Perform, no assigned price target.

Oppenheimer: Nothing 'Special'

Chipotle's "special" conference call was nothing special as management basically reiterated sales initiatives that were already communicated to investors, Bittner said in a note. Management shied away from offering any financial implications or long-term earnings targets from its ambitions -- although it may be "just too early" to commit to any goals. Most of Chipotle's new initiatives won't be introduced until late 2018 or 2019, so for the time being 2019 will be the year the management team led by recently appointed CEO Brian Niccol will be "graded on."

Investors should be buyers of Chipotle's stock if there's a pathway for the company to earn $20 per share in the medium term, the analyst wrote. As it stands now, however, there's no reason to have a high degree of confidence this is likely.

Canaccord: 3 Major Changes

There are three major changes to Chipotle's business, Collier said in a note. These include a revamp of marketing communications, growing digital sales and expand access through the second make line and a new loyalty program to be launched in 2019. These changes will impact multiple areas of the business, including marketing, digital, consumer access, menu and operations, the analyst wrote.

Multiple financial metrics should see improvements, including transactions, unit economics and ultimately shareholder value. Bottom line, Chipotle's stock now offers one of the "most compelling investment opportunities" within the restaurant space ahead of the new initiative roll outs over the next one to two years.

Raymond James: 'High Level Comments' Not Enough

Chipotle's management offered "high level comments" on its turnaround strategy, but the absence of any specific financial targets or even a second quarter sales implies a "relatively neutral" risk to reward profile on the stock, Vaccaro said in a note.

The bullish case for Chipotle's stock is based on expectations for a re-acceleration of comps to a mid-single digit (versus estimates of a negative single-digit today) and store margins to improve from around 18 percent today to the low 20's, the analyst wrote. This would warrant a stock price in the $550 to $600 range over the next 12 to 18 months, but a "muted" comp growth and margin expansion is more likely to occur over the near-term and would support a stock price in the range of $350 to $400.

Price Action

Shares of Chipotle were trading lower by more than 8 percent to $419.72 at time of publication.

Related Links:

BMO: 3 Possible Scenarios For Chipotle Over The Next 5 Years

Chipotle's Q1: The Street's Reaction

Image credit: Mike Mozart, Flickr

Posted In: Brian BittnerBrian NiccolBrian VaccaroCanaccord GenuityLynne CollierOppenheimerRaymond JamesAnalyst ColorRestaurantsTop StoriesAnalyst RatingsGeneral