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Why Did Wedbush Downgrade Chipotle?

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Wedbush’s recommendations

On August 27, Wedbush downgraded Chipotle Mexican Grill (CMG) from “neutral” to “underperform” and lowered its target price from $450 to $445. The new target price represents a fall of 10.2% from its current stock price of $495.60.

As reported by CNBC, Nick Setyan of Wedbush downgraded the stock due to concerns about the weaker-than-expected SSSG (same-store sales growth) since the beginning of third-quarter and increased pressure on the company’s margins.

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Setyan attributed the outbreak of Clostridium perfringens, a foodborne disease, for the slowdown in Chipotle’s SSSG. Setyan lowered his SSSG expectation for the third quarter to 4.5% from the previous estimate of 5.5%. On average, analysts expect the company’s SSSG to be at 5.7% for the third quarter.

Other analysts’ recommendations

Of the 32 analysts that follow Chipotle, 31.3% favor a “buy,” 56.3% favor a “hold,” and 12.5% favor a “sell.” Analysts have set an average target price of $462.22, which represents a fall of 6.7% from its current stock price.

Since the announcement of Chipotle’s second-quarter earnings on July 26, Jefferies, UBS, BMO, Maxim, Stifel, SunTrust Robinson, Bernstein, Citigroup, Barclays, and Morgan Stanley have all raised their target prices. On August 15, Citigroup raised its target price from $506 to $573, while Morgan Stanley increased its target price from $413 to $600. On the same day, Morgan Stanley upgraded the stock to “overweight” from “equal weight.”

Peer comparisons

Of the 11 analysts that follow Shake Shack (SHAK), 27.3% favor a “buy,” 45.5% favor a “hold,” and 27.3% favor a “sell.” Analysts have set an average target price of $54.22, which represents a fall of 5.8% from its current stock price.

Of the 32 analysts that follow McDonald’s (MCD), 65.6% favor a “buy” and 34.4% favor a “hold.” On average, analysts have set a target price of $183.55, which represents a return potential of 14.3%.

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

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