One Analyst Continues To Believe Chipotle's Valuation Is Overly Optimistic

Wedbush continues to believe current valuation reflects an overly optimistic outlook regarding Chipotle Mexican Grill, Inc. CMG.

The firm expects the company to report third quarter earnings of $1.25 per share on revenues of $1.095 billion. This is below the consensus estimates, which call for earnings of $1.64 per share on revenues of $1.097 billion.

The company is set to report is quarterly results after the close on October 25.

Although Chiptopia loyalty test and related promos may boost comp growth, Wedbush noted that same-store sales would be solidly negative in the third quarter. The firm estimates down mid-teens growth in comps, in line with the Street.

The firm is skeptical if the Chiptopia or other marketing initiative can put the company back on track in its pursuit of achieving mid-teens same-store sales growth needed starting in 2017 for pre-crisis average unit volumes to be achieved by 2018.

Wedbush continues to believe that a sales recovery by 2018 is the best case scenario and not base case scenario. Even if the company were to achieve pre-outbreak average unit volumes by 2018, the firm estimates unit level margins to be about 20 percent and not mid-20 percent.

As such, the firm maintained is Underperform rating on Chipotle and lowered its price target to $370 from $400 on lower peer valuations.

Shares of Chipotle were down 1.38 percent at $404.14.