Here’s Why Maxim Upgraded Chipotle Mexican Grill, Inc. (CMG) Shares

Chipotle Mexican Grill, Inc. (NYSE:CMG) shares tumbled nearly 5% in Tuesday’s trading session, following the news that the fast-food chain temporarily closed a restaurant in Virginia after multiple reports of customers falling severely ill after eating there.

However, Maxim analyst Stephen Anderson upgraded CMG from Hold to Buy, while raising the price target to $470 (from $440). The reason? The analyst believes the recent pullback in CMG shares, along with the potential for upside from queso (a Mexican cheese dip), provide an opportunity for investors to begin paring back their positions. (To watch Anderson’s track record, click here).

Anderson commented, “CMG is testing three items at its “NEXT Kitchen” in New York City, but of the three items being tested, which include margaritas and a new line of salads, we believe queso is the most intriguing of the three new menu items […] We believe CMG’s queso is differentiated enough to be not only a potential traffic driver in its own right, but also take market share from immediate rivals, including Qdoba. Although we acknowledge the risk of reduced throughput remains, we believe the potential sales and margin upside may be more than enough to offset this risk.”

The analyst continued, “CMG shares are off more than 20% from the mid-May 2017 recovery high. Multiplying our new 33x forward P/E target (which is above our prior 32x target) by our upwardly revised 2018 EPS estimate of $14.15, we arrive at an unchanged price target of $466.87, which we round up to $470. CMG’s percentage of short sales as a percentage of the total float is 18%, which is above the 10.2% weighted industry average, so better-than-expected results and updated guidance have the potential to trigger a short-covering rally.”

Out of the 24 analysts polled by TipRanks (in the past 3 months), 8 rate Chipotle stock a Buy, 11 rate the stock a Hold and 5 recommend to Sell. With a return potential of nearly 25%, the stock’s consensus target price stands at $467.80.


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