Baird Is Buying Into Chipotle's New CEO

CMG shares will need to overcome historical chart resistance to reach Baird's ambitious price target

Feb 27, 2018 at 9:07 AM
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Chipotle Mexican Grill, Inc. (NYSE:CMG) got a much-needed boost two weeks back when the company announced Taco Bell vet Brian Niccol as its new CEO. Baird certainly likes the hire, this morning upgrading Chipotle stock to "outperform" and boosting its price target to $400 from $315. The brokerage firm said Niccol is an "extremely talented leader" and touted his work at Yum! Brands (YUM) and Procter & Gamble (PG). CMG shares are set to open 2% higher as a result, but they still have a lot of ground to make up on the charts.

As of its close yesterday at $311.89, the equity has lost roughly 26% over the past year, and rally attempts have stalled out in the $330-$340 area going back to August. Most analysts have thus taken a bearish stance, with just three of 27 handing out "buy" recommendations, and the average 12-month price target sits at just $307.69.

Some bears have been calling it quits on Chipotle, though. Since early November short interest on CMG has fallen 40%, including a 13.3% slide in the last two reporting periods. However, 13% of the security's float is still controlled by short sellers, so there's room for an extended round of short-covering, which could help the shares.

Meanwhile, options activity has actually been relatively muted since the company announced Niccol's hiring. CMG's open interest of 119,139 contracts ranks in just the 10th annual percentile. Nevertheless, out of all the option contracts yet to expire the March 350 call saw the largest increase in open interest during the past two weeks, and many positions were bought to open -- so a number of speculators agree with Baird's bullish outlook.

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