Jefferies Bites Into Chipotle Hoping To Taste 22% Upside

Chipotle Mexican Grill, Inc. CMG plunged 4 percent in Monday's after-hours trading after yet another incident of foodborne illness caused one restaurant to close.

Jefferies still craves the beleaguered brand, though.

The Rating

Analysts Andy Barish and Alexander Slagle upgraded Chipotle to Buy and raised their price target from $400 to $550.

The Thesis

Jefferies named Chipotle its top mid-cap stock and considers operating leverage not yet fully priced in.

“We believe CMG is one of the better positioned companies to benefit from the ongoing shift to digital/off-premise with the operations now poised to again handle increased volume and throughput,” Barish and Slagle wrote in a note. “New management plans are credible and should help drive results in ’19 (where we are now 20 percent above cons) and beyond.”

By their assessment, improvements in operations, throughput, digital, delivery, loyalty, product, marketing and remodeling will drive mid-single digit comps in 2019 and 2020.

The increased same-store sales, compounded by operational efficiencies and opportunity to improve the consumer experience, are then expected to drive margin leverage and a return to 20-percent restaurant-level margins.

“We also note some recurring challenge areas (portions, cleanliness), which we believe highlights the opportunity for operational improvements and digital/off premise initiatives,” the analysts wrote.

They raised their 2019 bottom-line estimate from $12.42 to $14.40 on a projected 300-point rise in same-store sales.

Price Action

At time of publication, Chipotle shares were set to open down 3.4 percent at $449.75.

Related Links:

Analysts Review Chipotle's Q2: 'We Continue To View 2018 As A Transition Year'

Mizuho Loses Taste For Chipotle, Downgrades To Underperform

Image Credit: Tacvbo/, via Wikimedia Commons