Chipotle Mexican Grill's Price Target Slashed By Deutsche Bank On Same-Store Sales; Stock Plummets

Deutsche Bank’s Brett Levy pointed out that Chipotle Mexican Grill, Inc. (NYSE: CMG) has gone from same-store sales gains in the high teens and share price of $750 in 2015 to declining same-store sales of 40 percent and the share price dropping to $400.

Levy maintain a Sell rating on the company, but lowered the price target from $360 to $340.

“The story has had uncertainty in recent quarters, but neither Bulls nor Bears appear convinced on sales trends or the share price's next move,” the analyst mentioned.

Competitive Landscape

Levy noted it would be difficult to bring guests back to Chipotle’s AUVs of more than $2.5 million seen in 2015.

“Some of these customers may be lost for good, but in the battles to regain other guests, we believe additional issues may weigh on CMG’s prospects,” the analyst stated.

Related Link: Chipotle Longs Feeling Queasy, Shares Down $30 This Week

Margin Pressure

On the other hand, margin pressure is expected to persist due to increased investments. At its peak restaurant level margins of more than 27 percent, Chipotle created “one of the most impressive unit economics stories across the restaurant landscape.”

Although the management expects a potential return to margins in the mid-20 percentage, Levy expressed doubts regarding the company’s future margin potential.

However, regarding the stock valuation, the Deutsche Bank report said, “Even if CMG is able to return to its above-average earnings growth, the potential volatility and increased competitive changes could create a new and lower average multiple going forward.”