Analysts Applaud Another Strong Quarter From Chipotle

A number of Wall Street analysts believe CMG will struggle to meet rising expectations

Jul 27, 2018 at 10:03 AM
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After a 24.4% post-earnings explosion last quarter, Chipotle Mexican Grill, Inc. (NYSE:CMG) is on the rise again thanks to another strong showing in the earnings booth. The company topped nearly all major metrics, including a much better-than-expected increase in same-store sales for the period, and also gave an upbeat full-year outlook. As such, CMG shares have popped 5.8% to put them at $472.77, earlier tapping a fresh 52-week high of $481, and a few analysts are expecting much more upside.

For example, Chipotle has received at least eight bullish brokerage notes since yesterday's close, though many of the analysts' price targets remain bullish the stock's current price, with a number of them saying that optimism is running too high around the equity. Still, SunTrust Robinson, Canaccord Genuity, and Bernstein set their respective price targets at $510, $550, and $560. This latter target represents a more than 18% premium to current levels, and territory not seen since 2015.

But focusing back on the analysts that are keeping their expectations in check on CMG, this is part of an ongoing theme surrounding the security; last quarter's huge earnings reaction was also met with tepid brokerage attention. In fact, 17 of the 23 brokerage firms in coverage still have "hold," "sell," or "strong sell" ratings on the stock, and the average 12-month price target sits down near $441. Considering this, Chipotle could enjoy more tailwinds if some of these bearish holdouts begin to throw in the towel.

In a similar vein, short interest still represents almost 11% of the total float, or 4.7 times the average daily trading volume. On the other hand, the number of shares sold short fell by nearly 17% in the last two reporting periods, so bears are seemingly starting to hit the exits -- and more short-covering would only help the equity.

At the same time, it's probably a fair argument to say that Chipotle may have run too far too fast, since it's up almost 64% already in 2018. In the weeks leading up to earnings, CMG shares enjoyed strong support from the 50-day moving average, which contained its late-June pullback.

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