Why The Chipotle Bull-Bear Debate Is Focused On Comps

The recently-hosted bull-bear debate related to Chipotle Mexican Grill, Inc. CMG indicated investors were “largely negative” or had a “concerned bias” on the shares, Deutsche Bank’s Brett Levy said in a report.

Levy added that Chipotle’s near-term comps would be “significantly negative for some time.” He maintained a Sell rating on the company, with a price target of $280.

Near-Term Concerns

With comps likely to remain negative, management is focusing on marketing, unit-level execution and infrastructure investments, which could impact Chipotle’s margins. Some investors seemed willing to give management a bit more time, provided the company’s same-store sales did not decline, Levy mentioned.

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The Bulls believe if management’s recovery efforts prove fruitful, Chipotle could reaccelerate unit growth, regain lost ROIC [return on invested capital] and send shares higher, the analyst stated. He added, however, that the longer Chipotle took to reaccelerate its sales and earnings growth, “the less likely the shares will see the valuation multiples return to historical levels,” especially if the company’s long-term earnings growth was lower than prior levels.

Despite management’s planned efforts, the company “still faces an uphill battle to regain its prior sales, profits, valuation levels,” Levy commented.