The worse is yet to come for Chipotle, says Jefferies

Published By: Angela Campbell on January 11, 2017 12:34 pm EST

Jefferies ‎Managing Director, Andy Barish, has red flagged Chipotle Mexican Grill, Inc. (NYSE:CMG) following the preannouncement of the Q4 results. The analyst believes that the weakness in the company’s business is likely to be sustained for the next few quarters and the investors will have to wait a little longer before they see recovery in the stock price. Contrary to him, the stock has shown no signs of decline as of yet and is trading close to its opening price.

While, the preannounced results for the fourth quarter are not very encouraging, there seems to be one positive spot towards the end of it. In comparison to the past year, the company’s sales decline by 20.2% in October and 1.4% in the month of November, but the data for December suggests 14.7% improvement in comps. Decline of 30% during December 2015 gives the net effect of 15% decline during the past 2 years. Despite this improvement towards the end of the year, analyst Andy Barish remains skeptical of the company’s near-term prospects.

While there is some encouraging news regarding the company’s topline, the bottom line is an entirely different story. It has significantly increased its advertisement spending and it is likely to continue to keep an elevated spending level in order to bring traffic back to its stores. The management has guided for an EPS of $10.00 for the year 2017. Mr. Barish believes that this is incredibly lofty, assuming the current situation of the company, and expects it to be significantly reduced in the coming months. The analyst reaffirmed Underperform rating and the price target of $300. The ratings for the stock are 5 Buy, 6 Outperform, 19 Hold, 2 Underperform, and 5 Sell. The stock now trades at a price of $416.29 and has gained 0.44% since the open of the market.