Oppenheimer Turns Bearish On Chipotle: Stock Is 'Too Spicy'

After gaining more than 80 percent since a management change announcement in February, casual fast food restaurant Chipotle Mexican Grill, Inc. (NYSE: CMG)'s stock has become "too spicy" to support right now, according to Oppenheimer.

The Analyst

Oppenheimer's Brian Bittner downgraded Chipotle from Perform to Underperform with a new 12- to 18-month price target of $400.

The Thesis

Chipotle's stock appreciation since the appointment of Brian Niccol as CEO can only be supported by unrealistic expectations, Bittner said in a note. Specifically, Chipotle's stock at current levels prices in a consistent mid-single digit same-store sales growth and a clear path to grow EPS from an estimated $8 to $9 this year to $20.

Even working under the assumption of healthy sales the earnings path to $20 per share is overly aggressive due to:

• The absence of value to consumers;
• No drive-through capabilities;
• Heightened competition;
• More than 600 new stores that are structurally underperforming;
• Matching the Street's margin growth expectation will be difficult given labor headwinds, potential store-level investments and a lack of new menu-pricing upside.

Bittner's $400 price target is based on a 29 times price-to-earnings multiple in 2020 of $13.74, which is still a "healthy premium" to restaurant peers showing similar same-store sales and unit growth (22 to 27 times) but a modest discount to the current multiple that's "well-above" its peers.

Price Action

Shares of Chipotle were trading lower Monday by 1.2 percent to $449.

Related Links:

Wedbush Turns Bearish On Chipotle, Says Risks Are Underappreciated

Chipotle CEO Says Top Priority Is To Remind People 'Why They Love' The Fast Casual Restaurant

Photo credit: Mike Mozart, Flickr