Has Chipotle Hit Its Bottom? Stock Gets An Upgrade

After hitting a new multi-year low of $296 per share Wednesday, analysts at Stephens felt it was time to upgrade Chipotle Mexican Grill, Inc. CMG. The firm's Will Slabaugh upgraded the stock rating from Underweight to Equal Weight, but he lowered the price target from $350 to $325.

Chipotle's stock at current levels factors in investor concern surrounding the company's ability to improve sales and margins after a recent food scare crisis, Slabaugh commented in his upgrade note. But at the same time, Chipotle's stock is now "low enough to begin taking a fresh look at shares."

An Equal-Weight rating still implies there are concerns in owning the stock, including the rising competition in the fast-casual restaurant space, the analyst continued. Other factors that prevent a Buy rating include near-term cost pressures and further earnings per share revisions to the downside.

Looking forward, Chipotle needs to impress the restaurant sector with a new product offering to drive positive traffic; the announcement of queso dip on the menu in a few hundred stores is a good start. Also, the testing of dessert items is an encouraging sign, but it will be necessary for the company to continue introducing new or tweaked menu items consistently to generate the necessary traffic growth.

Finally, as it stands now there is no existing path toward sustainable positive traffic trend, which implies it is difficult for the analyst to assign a premium to the stock's multiple. Related Links:

Redemption Remains Just Out Of Chipotle's Grasp

What Should Concern Chipotle Investors The Most? The Pace Of Sales Trends