Chipotle (CMG) Stock Slips, Morgan Stanley Downgrades

Chipotle (CMG) stock is retreating in pre-market trading Friday as Morgan Stanley reduced its rating on shares to ‘equal-weight’ from ‘overweight.’
By Kaya Yurieff ,

NEW YORK (TheStreet) -- Chipotle Mexican Grill (CMG) - Get Report stock is falling 2.08% to $409.28 in pre-market trading Friday as Morgan Stanley cut its rating on shares to "equal-weight" from "overweight."

The firm also lowered its price target to $405 from $500 on shares of the Denver-based burrito maker.

The downgrade is based on new evidence that the company's sales recovery following several food safety crises will remain more protracted than the market believes.

Additionally, the recovery could possibly be costlier as a result because Chipotle likely needs to ramp up marketing spending to lure customers back, according to the firm.

Morgan Stanley's recently revisited flash survey of 2,000 consumers, 720 of whom eat at Chipotle, indicated that 13% of consumers still say they won't go back any time soon. This is only a modest decline compared to January 2016, the firm noted.

Also, 13% of guests have reduced frequency at Chipotle.

"A full sales recovery to prior peak volumes could take years in our view, as evidenced by the fact that, according to our survey, approximately 25% of CMG customers either have stopped going or reduced frequency, even six months after the last reported food safety incident," Morgan Stanley wrote in an analyst note.

Separately, TheStreet Ratings Team has a "Hold" rating with a score of C on the stock.

The primary factors that have impacted the rating are mixed. The company's strongest point has been its very decent return on equity which we feel should persist.

But the team also finds weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and poor profit margins.

Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.

You can view the full analysis from the report here: CMG

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