Jefferies To Chipotle Investors: Take Some 'Chips Off The Table'

Shares of restaurant chain Chipotle Mexican Grill, Inc. CMG are up more than 60 percent in the first quarter alone and now may be a good time for investors to take "chips off the table," according to Jefferies.

The Analyst

Jefferies' Andy Barish downgraded Chipotle from Buy to Hold with a price target lifted from $600 to $700.

The Thesis

Chipotle's stock benefited from the rollout of a loyalty program sooner than expected and encouraging same-store sales metrics, Barish said in a note. The company still has multiple catalysts ahead to spur incremental growth and generate among the best same-store sales trends in the industry, including marketing, improved operations/people metrics and new products.

Barish says Chipotle has already seen a large uptick in app downloads and average daily user growth. In fact, the company hit an impressive one million rewards member user base within 10 days of launch and this prompted a justified move higher in the stock. On the other hand, this implies the company's "powerful" drivers are "better understood and discounted in the stock" at current levels.

The research firm's revised $700 price target is based on a discounted cash flow model, which estimates $2.4 million in average unit volumes in 2022, 25 percent in restaurant level margins. The model generates a value close to the stock's current trading price.

Price Action

Chipotle's stock traded lower by 1.5 percent to $707.63 per share.

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