NEW YORK (TheStreet) -- Chipotle Mexican Grill (CMG) - Get Report shares are tumbling 1.96% to $466 in Tuesday's pre-market trading session after analysts at Wedbush Securities downgraded the burrito chain to "underperform" from "neutral," saying that current valuation is "overly optimistic."
The firm, also cutting its price target to $400 from $450, wrote in a note to investors yesterday that even if sales rebound, unit economics may not.
For several months, the company's reputation has been tainted and shares have been under pressure following the E. coli and norovirus outbreaks linked to its restaurants.
Consequently, Wedbush analysts currently view the company's recovery as challenging, pointing out the "best-case" scenario which is for sales to make a comeback in 2018. In order for this to happen though a continuously accelerating three-year transaction growth trajectory is necessary, they said.
"While we remain skeptical other material transaction drivers will emerge in the near term, and question the sustainability of a transaction recovery absent couponing and giveaways, we model transactions turning positive by fourth quarter fiscal 2016," the firm added.
Separately, TheStreet Ratings currently has a "Hold" rating on the stock with a letter grade of C+.
The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its respectable return on equity which we feel is likely to continue. At the same time, however, we also find weaknesses including a generally disappointing performance in the stock itself, unimpressive growth in 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' author.
You can view the full analysis from the report here: CMG