Chipotle Concerns Mount As 2018 Estimates At Risk; BofA Downgrades

Bank of America analysts lost their appetite for Chipotle Mexican Grill, Inc. CMG ahead of the company's third-quarter earnings report on Oct. 24. The firm's Gregory Francfort downgraded Chipotle's stock from Neutral to Underperform with a price target slashed from $390 to $285.

Chipotle is expected to report an "OK" third-quarter print, but could be coupled with concerning guidance metrics, Francfort explained in his note. New store opening guidance could be offered in a range of 195 to 210 and anything lower would be a negative. Management could also guide its fiscal 2018 earnings per share in a range of $9 to $10, which would fall short of the consensus estimate of $10.54 per share and cause a downward revision from Wall Street analysts.

If Chipotle's management guides its 2018 EPS above $10 per share it would set up an "optimistic" scenario and the company will likely miss its target, Francfort added.

"Despite our belief that the near-term results should be fine, we remain concerned about the 2018 consensus EPS, in particular around what we believe are aggressive labor cost assumptions," the analyst said.

There are a few risks to the analyst's bearish stance, including the potential for tax reform as Chipotle would be "one of the most positively impacted" restaurant names. Investor sentiment is already low, which may limit downside moving forward.

Related Links:

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

For Chipotle, Concerns That Queso Isn't Connecting With Consumers

Image credit: Chis Potter, Flickr