Battleground: Credit Suisse exits Chipotle bull camp, Wells likes new strategy
The shares of Chipotle (CMG) are retreating after the company reported weaker than expected third-quarter results and continued sales losses in the wake of its food safety issues. Analysts were largely bearish on the company's outlook, as Credit Suisse cut its rating on stock to Neutral and Deutsche Bank reiterated a Sell rating. Wells Fargo stands out on the bullish side, as the firm said it is upbeat on the burrito chain's new strategy RESULTS: Chipotle's Q3 EPS, excluding one-time items, was 79c, versus the consensus outlook of $1.59, and its same-store sales tumbled tumbled 22% versus the same period a year earlier. Analysts' consensus estimate called for an 18% year-over-year decline in its same-store sales. BEARISH TAKE: Chipotle's sales recovery "continues to take longer than expected," wrote Credit Suisse analyst Jason West, who downgraded the stock to Neutral from Outperform following the latest quarterly report. Its most loyal users have returned, but it's "struggling" with more casual Chipotle fans, West believes. Noting that the company is accelerating the pace of its menu changes and testing national TV ads, West says that the company is abandoning its longtime strategies of simple menus and limited marketing spending. He lowered his price target on the stock to $375 from $500. Chipotle's new strategy is "significant and positive," but its turnaround will not be "easy or consistent," wrote Deutsche Bank's Brett Levy. Moreover, the company's 2017 guidance for earnings per share of $10 and a 20% same-store sales decline is "aggressive," and it's facing "an uphill battle," Levy believes. He kept a $280 price target and Sell rating on the stock. BULLISH TAKE: Chipotle has introduced a "far more aggressive" recovery strategy, consisting of menu changes and improvements in its online platform, wrote Wells Fargo's Jeff Farmer. The restaurant chain will probably become "more consumer friendly over the next several months," according to Farmer, who kept an Outperform rating on the shares. Similarly, JPMorgan's John Ivankoe wrote that Chipotle is finally emulating the strategy of other restaurant chains that are trying to enhance their brand value. The analyst thinks that the changes could boost Chipotle's sales, and he recommends that "risk tolerant" investors buy the stock around $375 per share. PRICE ACTION: In morning trading, Chipotle sank more than 7% to about $376 per share. Over the last twelve months the stock has declined more than 43%.