Mizuho Loses Taste For Chipotle, Downgrades To Underperform

Chipotle Mexican Grill, Inc. CMG is up nearly 85 percent since the firm poached CEO Brian Niccol from Taco Bell. But for some former buyers, the flavor is fading.

The Rating

Mizuho Securities analyst Jeremy Scott downgraded Chipotle to Underperform, but raised his price target from $300 to $330.

The Thesis

Scott anticipates challenges limiting Chipotle’s innovation and menu development.

“The bad news is that we believe the market may be pricing in a downhill battle for menu development,” he wrote in a Tuesday note.

Complex or inconsistent offerings could disrupt store productivity during high-traffic lunch periods and drive execution expenses, thereby sacrificing customers and margins.

At the same time, Mizuho expects a rise in costs associated with comps growth, such as investments in mobile payment, marketing and engagement.

“We believe the stock currently prices in an aggressive recovery in both comps and margins,” Scott wrote. “While it is our view that Niccol is the best choice to lead Chipotle from here, in the absence of clear catalysts that can justify significant earnings upside, we're compelled to recommend investors reduce their risk.”