Miller Tabak Upgrades Chipotle, Says 'Pullback Provides Opportunity'

In a report published Thursday, Miller Tabak analyst Stephen Anderson upgraded the rating on Chipotle Mexican Grill, Inc. (NYSE: CMG) from Hold to Buy. The price target was raised from $715 to $725. The analyst expects the company to average EPS growth of at least 25 percent through 2016.

"CMG shares fallen almost 20% since reaching their high in February—with much of this decline occurring since the company reported 1Q15 (March) earnings on April 21—on fears that a comp deceleration and sustained high food costs would hurt profit expansion," Anderson said.

However, the analyst believes that the decline in food costs, in combination with mid- to high-single-digit same-store restaurant sales growth would drive above peer EPS growth for Chipotle Mexican Grill through 2016.

According to the Miller Tabak report, "We also contend CMG's unit pipeline remains solid, and think ShopHouse's pending entry into the Chicago market will presage a period of more rapid expansion for CMG's fast casual Asian concept."

In addition, Anderson believes that the company's cash position and robust FCF generation support an increase in share buybacks. The company is likely to take advantage of the recent decline in the share price to boost its EPS.

"We argue the recent pullback in CMG presents an opportunity for solid share price upside in the next few quarters," Anderson added.