Morgan Stanley Picks Pizza Over Burritos

Morgan Stanley pumped the brakes on Chipotle stock

Managing Editor
Apr 17, 2019 at 10:04 AM
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Today, Morgan Stanley weighed in on two restaurant stocks. First up, the brokerage firm downgraded Chipotle Mexican Grill, Inc. (NYSE:CMG) to "equal-weight" from "overweight," while raising its price target to $658 from $617. The analyst in coverage sees the burrito chain's upside already baked in, with sales-driving initiatives already accounted for. 

At last check, Chipotle stock was down 1.6% to trade at $694.95, with damage likely contained by two price-target hikes to $820 and $680 from Bernstein and Wedbush, respectively. CMG has more than doubled year-over-year, and today's pullback has found support at its 30-day moving average. Put a different way, the equity has turned in only three weekly losses in 2019 thus far.

Although analysts have been heaping the praise on Chipotle stock lately, overall sentiment remains muddled. There are 28 brokerages in coverage of CMG, and 17 rate it a "hold" or worse. However, its consensus 12-month price target of $604.38 is a steep discount to its current perch. 

Morgan Stanley also weighed in on Domino's Pizza, Inc. (NYSE:DPZ), upping its rating to "overweight" from "equal-weight" while hiking its price target to $283 from $268. The analyst in coverage glowed about the pizza chain's valuation compared to its sector peers, and thinks its global sales growth is too bearish. 

At last check, Domino's stock was up 3.7% to trade at $264.78. Since a mid-February post-earnings bear gap, DPZ had consolidated below the $262 level. Today, the shares have toppled this short-term resistance, and have extended their year-to-date lead to 5.5%. 

An unwinding of bearish bets could fuel a sustained rally. Short interest increased by 21.5% in the two most recent reporting periods to 2.82 million shares, the most in 12 months. This represents a healthy 7.8% of DPZ's total available float, and 3.3 times the average daily trading volume. 

 

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