Analyst: 'Too Early to Buy' Chipotle Mexican Grill, Inc. (CMG)

Chipotle Mexican Grill, Inc. (CMG) execs offered up some discouraging numbers related to the restaurant chain's recovery

Alex Eppstein
Dec 6, 2016 at 11:02 AM
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Chipotle Mexican Grill, Inc. (NYSE:CMG) is getting cooked this morning, down 6.5% at $370.42. The technical tumble follows a company presentation in which executives said sales haven't recovered as much as expected from a rash of food-borne illnesses earlier in the year, and revealed same-store sales in October were down about 21%. In fact, CMG execs admitted they are "nervous" about the restaurant chain's 2017 guidance.

Canaccord Genuity weighed in following these revelations, saying, "Chipotle's third-quarter earnings reinforces our thesis that the path to recovery remains slow and the brand has yet to regain credibility with the consumer." As far as investing goes, the brokerage firm put it bluntly: "we believe it's too early to buy the stock."

Today's struggles are more of the same for CMG shares. Relative to the stock's perch this time last year, Chipotle is down 33%. Early last month, in fact, the shares notched a three-year low, before the round $350 level finally stopped the bleeding.

Therefore, it should come as little surprise to see Wall Street stacked against the stock. For example, 17 of 25 analysts rank CMG a "hold" or worse. Separately, short interest swelled 13% during the last two reporting periods, and now accounts for 22.7% of the equity's total float.

On the surface, options traders have broken with that bearish trend. Over the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 16,224 CMG calls versus 12,125 puts. What's more, the resultant call/put volume ratio of 1.24 sits near the top quartile of its annual range. However, given Chipotle Mexican Grill, Inc.'s (NYSE:CMG) high levels of short interest, it may be that call buyers are in fact short sellers purchasing upside protection, rather than hoping for a breakout.

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