Although Chipotle Mexican Grill (CMG) reported better EPS (earnings per share) than expected, the share price fell by 2.9% to $461.90 at the end of February 3, 2016. Investors seem to be sceptical over future earnings due to the food contamination issues in the company’s restaurants.
With more recent updates available, analysts have revised their price target for the next 12 months to $475.17. This represents a return potential of 2.9% over the next 12 months. Andrew Strelzik of BMO Capital Markets and Karen Holthouse of Goldman Sachs have estimated that Chipotle’s share price will reach $550. Will Slabaugh of Stephens has predicted it will fall to $375.
In January 2016, Strelzik wrote, “Recognizing near-term risks and uncertainty, the long-term CMG unit growth story remains intact and comps should begin to recover over time, in our view. Even assuming a flattish EPS year in 2016, we believe the risk/reward is compelling as CMG’s stock currently trades at approximately 30x P/E on trough EPS.”
According to a Bloomberg consensus in a survey of 32 analysts, 40.6% have given Chipotle a “buy” recommendation, 56.3% have given it a “hold” recommendation, and 3.1% are recommending a “sell.” The share price of Chipotle moves in tandem with analyst recommendations. As analysts raise their next 12-month target price, share prices of the stock will also increase, and vice versa.
Chipotle’s share price being traded at a lower price than its target price doesn’t mean an automatic buy. Before investing, investors should carefully analyze various matrixes discussed earlier.