Stifel Sees Reboot Opportunity For Chipotle, Upgrades From Sell To Hold

While Chipotle Mexican Grill, Inc. CMG's traffic has declined and its margins deterioriated, recent management changes and turnaround initiatives could pave the way for a much-needed reboot, according to Stifel.

The Analyst

Chris O’Cull of Stifel upgraded Chipotle from Sell to Hold and raised the price target from $250 to $275.

The Thesis

Chipotle will struggle to recover sales and customer traffic — which bottomed out in 2016 — as competitors in the quick service restaurant sector have worked to improve food quality and value, O’Cull said in a Tuesday note. (See the analyst’s track record here.)

“Chipotle has been a pioneer in the fast-casual restaurant category, but their strategy has been copied by a plethora of restaurant concepts that have emerged during the past few years, and it has forced traditional QSR chains to improve the quality of their products," O'Cull said. 

Chipotle also faces a challenge in alleviating customer health concerns such as the 2015 E.coli outbreak, which devastated sales, the analyst said. 

The hiring of CEO Brian Niccol has elevated optimism, as many investors believe Niccol can reverse Chipotle’s traffic and margin trends, O’Cull said.

“Over the past three years, Mr. Niccol has pushed the boundaries at Taco Bell and solidified their position in the consumer's awareness. Chipotle needs a similar reboot to help the brand re-engage lapsed customers.”

Price Action

At the time of publication, shares of Chipotle were trading up 4.74 percent at $320.12. 

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