Oppenheimer: Steer Clear Of Chipotle

Shares of Chipotle Mexican Grill, Inc. (NYSE: CMG) hit a new 52-week low of $376.22 and were trading lower by more than 7 percent Wednesday in reaction to the company's third-quarter earnings report, which further calls into question the restaurant chain's ability to turn itself around.

Brian Bittner of Oppenheimer counts himself among the Wall Street crowd not hopeful of a recovery. The analyst reiterated a Perform rating on Chipotle's stock but won't recommend buying shares near the $400 level. He elaborated that he sees downside risk to the $300 range.

At $300 shares of Chipotle would be valued at 47x the analyst's 2017 earnings per share estimate and 33x his 2018 estimates.

Bittner believes Chipotle's outlook for 2017 may be too aggressive. The company's $10 per share earnings per share guidance for 2017 assumes a high-single-digit comps and 20 percent restaurant margins, both of which represent an aggressive bar.

In fact, the company's margins guidance implies a 500-basis-point increase, which is "too aggressive" and requires per-unit labor and other costs to materially decline at a time when sales are expected to surge.

"Our view is that the new EPS guidance appears optimistic and at some point in near future CMG's earnings expectations and a more normalized multiple will ultimately be the main driver of the stock price," Bittner wrote.