Lynne Collier Recognizes Chipotle Mexican Grill, Inc. (CMG) Positive Goals for a Turnaround, But Skeptical on Near-Term Fundamentals

Canaccord's Lynne Collier notes that a leader with turnaround experience could bode well for CMG down the line, but the short-term has her getting more cautious.

Chipotle Mexican Grill, Inc. (NYSE:CMG) shares are rising 3% after news broke this morning of some welcome leadership overhaul: founder Steve Ells is handing in the reigns as CEO to become executive chairman. Spencer Stuart will now help the burrito chain to find a new CEO who specifically has “turnaround” savvy, as the CMG team recognizes the challenges that lie ahead: execution must get better, customer trust must be regained, and sales need to go on an upturn.

Canaccord analyst Lynne Collier continues to survey the chain from the sidelines, even while taking the leadership revamp in encouraged stride, noting she feels rising skepticism circling the company’s short-term.

Therefore, the analyst reiterates a Hold rating on CMG stock with a price target of $325, which represents a 10% increase from where the stock is currently trading. (To watch Collier’s track record, click here)

Additionally, the analyst has dialed down her fourth quarter EPS forecast from $1.49 to $1.35 taking under account a new comp assumption of down -1.0% compared to +1.0% while trimming the restaurant-level margin from 16.3% to 16.1%.

Collier believes, “Results have been disappointing since the food-borne illness outbreaks of late 2015, given consumer perception changes fueled by continued negative press events disrupting the traffic recovery, as well as restaurant challenges such as increased turnover, product and procedure changes, among others. We view the search for a new leader with turnaround experience as a long-term positive. However, we are growing more cautious on the near-term fundamentals and see increased uncertainty.”

Wall Street’s majority is lined up on the sidelines right there with Collier, considering TipRanks analytics exhibit CMG as a Hold. Out of 26 analysts polled by TipRanks in the last 3 months, 4 are bullish on Chipotle stock, 19 remain sidelined, while 3 are bearish on the stock. With a return potential of nearly 8%, the stock’s consensus target price stands at $316.13.

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