Oppenheimer Turns Bearish On Chipotle: Stock Is 'Too Spicy'

After gaining more than 80 percent since a management change announcement in February, casual fast food restaurant Chipotle Mexican Grill, Inc. CMG's stock has become "too spicy" to support right now, according to Oppenheimer.

The Analyst

Oppenheimer's Brian Bittner downgraded Chipotle from Perform to Underperform with a new 12- to 18-month price target of $400.

The Thesis

Chipotle's stock appreciation since the appointment of Brian Niccol as CEO can only be supported by unrealistic expectations, Bittner said in a note. Specifically, Chipotle's stock at current levels prices in a consistent mid-single digit same-store sales growth and a clear path to grow EPS from an estimated $8 to $9 this year to $20.

Even working under the assumption of healthy sales the earnings path to $20 per share is overly aggressive due to:

• The absence of value to consumers;
• No drive-through capabilities;
• Heightened competition;
• More than 600 new stores that are structurally underperforming;
• Matching the Street's margin growth expectation will be difficult given labor headwinds, potential store-level investments and a lack of new menu-pricing upside.

Bittner's $400 price target is based on a 29 times price-to-earnings multiple in 2020 of $13.74, which is still a "healthy premium" to restaurant peers showing similar same-store sales and unit growth (22 to 27 times) but a modest discount to the current multiple that's "well-above" its peers.

Price Action

Shares of Chipotle were trading lower Monday by 1.2 percent to $449.

Related Links:

Wedbush Turns Bearish On Chipotle, Says Risks Are Underappreciated

Chipotle CEO Says Top Priority Is To Remind People 'Why They Love' The Fast Casual Restaurant

Photo credit: Mike Mozart, Flickr