Chipotle valuation 'increasingly challenging to justify,' says Wells Fargo
In a research note titled "We Think Queso Failed To Add The Zest To 3Q SSS Many Investors Craved," Wells Fargo analyst Jeff Farmer says Chipotle Mexican Grill's "premium valuation as increasingly challenging to justify." Lingering food safety concerns and a "perceived lukewarm initial consumer reception" to Chipotle's first TV-backed new product launch, queso, indicate another quarter of "underwhelming" average unit volume recovery and "sizable" downward earnings risk to 2018 and 2019 estimates, Farmer argues. He models Q3 same-store-sales being down 0.2%, versus the consensus expectations of up 2.0%. Chipotle reports Q3 results on October 24. Farmer keeps a Market Perform rating on Chipotle shares.