Struggles Continue for Starbucks, Chipotle After Stocks Hit with Downgrades

UBS said this could be the new normal for Chipotle

Josh Selway
Feb 1, 2018 at 9:57 AM
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Following its poorly received earnings release last week, Starbucks Corporation (NASDAQ:SBUX) is seeing bearish analyst attention this morning, while Chipotle Mexican Grill, Inc. (NYSE:CMG) was hit with a downgrade of its own ahead of earnings next Tuesday. We'll quickly check in on shares of SBUX and CMG below to see how the stocks are trading following this round of downbeat attention.

More Post-Earnings Downside For SBUX Stock

As alluded to, Starbucks stock gapped lower last week due to a disappointing earnings release and lackluster 2018 outlook. The shares have since drifted even lower to fall below their 200-day moving average, which served as support during the late-December pullback. Today, SBUX is trading 1.1% lower at $56.21, after Mizuho downgraded it to "neutral" from "buy," and dropped its price target to $60 from $68. In its note, the brokerage firm said it believes the coffee brewer is struggling to reach casual customers.

As we've pointed out before, the sentiment picture does not set up well for Starbucks. That is, 20 of 26 covering analysts still have "buy" or "strong buy" ratings in place, suggesting more downgrades could be on the horizon. And short interest has been edging higher, up 7.1% in the last reporting period alone. As such, SBUX could face additional headwinds on the charts going forward.

UBS Sees 'New Normal' For Chipotle

Turning to Chipotle stock, UBS this morning lowered its opinion to "sell" from "neutral" and slashed its price target to $290 from $345. The covering analyst cited poor customer reviews and a difficult industry environment for the bearish call, adding, "CMG is facing a new normal rather than an ongoing recovery."

The shares are trading 3.5% lower this morning at $313.29, pushing them below their 50-day moving average, which had been acting as support since late November. Since its May high near $500, Chipotle has fallen 38.1%.

Unlike Starbucks, however, most analysts are already bearish, with just four of 27 recommending to buy the stock. Elsewhere, a number of short sellers recently covered their positions, with short interest falling by almost 26% over the past two reporting periods alone. But if the technical and fundamental issues persist, CMG shorts could become active again, which would obviously be trouble for the shares.

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