Chipotle Mexican Grill (NYSE:CMG) shares fired up nearly 30% this week after the Mexican food chain’s first quarter earnings far outpaced Wall Street expectations, posting $2.13 in earnings per share versus an expected $1.59.
Usually, when a stock reaches the target an analyst has set, the analyst logically has two ways to react: downgrade on valuation, or, re-adjust his price target to a higher level. Maxim analyst Stephen Anderson did both. The analyst downgraded CMG from Buy to Hold, while lifting the price target to $435 (from $410), which represents a slight upside potential from current levels.
Anderson commented, “At our new $435 price target, we believe the potential upside from initiatives proposed by new CEO Brian Niccol should be balanced against potential risks, including those posed by daypart expansion (e.g., increased food and labor costs, rejection of new menu items), accelerated menu innovation (e.g., reduced restaurant-level efficiency), unit expansion (e.g., below-trend returns on new locations), and potential execution risks posed by recent changes in senior management. We believe CMG’s positives now are being priced into the market, and given our outlook that these positives will extend into 2019, we now believe CMG shares should trade closer to its long-term average of 30x forward P/E, up from our prior 28x multiple target.”
Bottom line: “In light of the 24% share price jump yesterday, as well as the 46% year-to-date gain, we now believe potential positives and risks are in balance, and that the current share price takes these factors into account.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Stephen Anderson has a yearly average return of 11.2% and a 69% success rate. Anderson has a 29.7% average return when recommending CMG, and is ranked #200 out of 4778 analysts.
Out of the 32 analysts polled in the past 12 months, 6 rate Chipotle stock a Buy, 22 rate the stock a Hold and 4 recommend a Sell. With a downside potential of 17%, the stock’s consensus target price stands at $353.89.