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Why Did Raymond James Upgrade Chipotle?

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Jan. 22 2018, Published 8:09 a.m. ET

Analysts’ recommendations

On January 19, 2018, Raymond James analysts upgraded Chipotle Mexican Grill (CMG) from an “underperform” to a “market perform” rating. Brian Vaccaro and Brandon Sonnemaker of Raymond James have upgraded the stock because they see no material downside risk to their 2018 estimates. These analysts have raised their 2018 estimates citing a third round of menu price increases and stabilizing industry trends.

However, the analysts are expecting Chipotle’s 4Q17 earnings to be on the lower side due to lower traffic at the company’s restaurants. The reporting of another food safety issue in December may have negatively impacted the company’s traffic during the quarter.

On the same day, Bernstein reiterated its “outperform” rating on the stock due to its broader optimistic view on restaurants. The enactment of US tax reforms on December 22, 2017, is expected to benefit restaurant companies by way of lower corporate taxes.

However, Cowen and Company reiterated its “underperform” rating on the stock. The diversified financial services company stated that the company’s number of Facebook check-ins indicated a decline in traffic at its restaurants during the beginning of this year.

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Of the 35 analysts that follow Chipotle, 17.1% are recommending “buys,” 71.4% are recommending “holds,” and 11.4% are recommending “sells” on the stock. On average, analysts expect the company’s stock price to reach $322.89 in the next 12 months, which represents a fall of 6.1% from its current price of $343.87.

The target prices and return potentials of Chipotle’s peers are as follows:

  • The Cheesecake Factory (CAKE): target price of $47.69, which represents a fall of 1.4% from its current price of $48.34
  • Shake Shack (SHAK): target price of $44.10, which represents a return potential of 1.4% from its current price of $43.50

Next, we’ll take a look at how investors have reacted to the stock’s upgrade.

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