Queso Fail, Other Headwinds Lead This Analyst To Remain Cautious On Chipotle

Analysts at Stephens continue to hold a cautious view on Chipotle Mexican Grill, Inc. CMG despite a recent upgrade. The firm's Will Slabaugh upgraded Chipotle's stock to Equal-Weight in August amid a view that the negative media attention the company has been receiving is "well known" and fully digested by investors.

However, it's important to continue holding a cautious stance on Chipotle's stock as concerns over the heightened competitive restaurant landscape remain ongoing, Slabaugh commented in a brief report. Other ongoing headwinds include near-term cost pressures that could impact labor and cost of goods sold and the potential for negative earnings per share revisions from Wall Street analysts.

The response to Chipotle's new Queso launch in September has proven to be disappointing and could result in a smaller than previously expected boost to foot traffic, the analyst added. As a result, the company is likely to report a lower run-rate of same-store sales growth on slowly improving store-level margins.

Finally, Chipotle is expected to report an earnings per share of 97 cents in its third quarter earnings report (scheduled for Oct. 24), which marks a decrease from the analyst's prior estimate of $1.28 per share. Same-store sales is now projected to fall by 2 percent as opposed to a prior estimate that called for flat growth. This compares to the Street's consensus estimate of $1.75 per share on a 2.2 percent same-store sales growth.

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