Why Did Mizuho Downgrade Chipotle?

Mizuho’s recommendations

On July 10, Jeremy Scott of Mizuho Securities downgraded Chipotle Mexican Grill (CMG) from “neutral” to “underperform.” Scott raised Chipotle’s target price from $300 to $330. The new target price represents a fall of 27.3% from the closing price of $454.21 on July 10.

As reported by CNBC, in Scott’s research he said, “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. After an 80 percent run since Niccol’s appointment as CEO, we believe the stock currently prices in an aggressive recovery in both comps and margins.”

For the second quarter, Scott expects Chipotle to post a non-adjusted EPS of $2.83—a rise of 22% from $2.32 in the same quarter the previous year. He also expects the company’s EPS to be $8.40 for 2018, which represents 36.1% growth from $6.17 in 2017.

Why Did Mizuho Downgrade Chipotle?

Other recommendations

Of the total 32 analysts that follow Chipotle, 25% recommend a “buy,” 65.6% recommend a “hold,” and 9.4% recommend a “sell.” On average, analysts expect the company’s stock price to reach $413.39 in the next 12 months, which represents a fall of 9.0% from the current stock price.

Earlier, SunTrust Robinson, Morgan Stanley, and Canaccord Genuity raised Chipotle’s target prices. However, Maxim cut Chipotle’s target price from $435 to $420 on June 28.

Peer comparisons

The target price and return potential of Chipotle’s peers are:

  • Shake Shack (SHAK) has a target price of $49.80, which represents a fall of 28.1% from its current stock price of $63.70.
  • The Cheesecake Factory (CAKE) has a target price of $53.03, which represents a fall of 6.8% from its current stock price of $56.89.

Next, we’ll discuss Chipotle’s stock performance.