Goldman Sachs Cuts Chipotle's Price Target To $445, Still Lacking Top-Line Visibility

While Chipotle Mexican Grill, Inc. (NYSE: CMG) is undertaking initiatives, there is lack of clarity into the company’s top-line and margin profile, Goldman Sachs’ Karen Holthouse said in a report. She maintained a Neutral rating on the company, while reducing the price target from $490 to $445.

“A shift towards gathering customer data, more actively driving traffic and potentially new marketing techniques are all longer-term positives,” analyst Karen Holthouse wrote. She added, however, that there continued to be uncertainty regarding Chipotle’s top-line and margins, and that the company needed to exhibit improvements without the support of a limited offer or coupons.

Loyalty Program

Chipotle indicated that its loyalty program continued to ramp, and currently accounted for 30 percent of transactions. Holthouse expressed concern, however, regarding “consumers becoming fatigued” and Chipotle’s ability to “drive a return to prior behavior.”

Margin Profile

The company lowered the expected headwind from food safety costs from 200bps to 100-150bps. This implied some early efficiency gains. Labor inflation continues to increase, with hourly wages up 9 percent. While scheduling efficiencies resulted in a 9 percent decline in labor costs per store week, it is unclear whether Chipotle’s would be able to sustain these gains at higher AUVs, the analyst commented.

The EPS estimate for FY16 has been raised from $2.42 to $2.88 to reflect the 2Q beat. The EPS estimates for FY17 and FY18 have been reduced from $13.95 to $10.67 and from $19.97 to $15.60, respectively.

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