Shares of Chipotle fell 1.2% to $497.50 Friday.
The downgrade for the stock is due to its current valuation. The firm maintained its $510 price target for the restaurant chain.
In a note to investors, analyst Nick Setyan explained the downgrade by saying, "We believe the probability of upside to 2014 consensus expectations driven by throughput initiatives, a catering rollout, and a mid-2014 price increase is reflected in CMG's 48.5% outperformance since the beginning of 2013 relative to the S&P's 26.1% return."
TheStreet Ratings team rates CHIPOTLE MEXICAN GRILL INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate CHIPOTLE MEXICAN GRILL INC (CMG) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, increase in net income and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 0.5%. Since the same quarter one year prior, revenues rose by 18.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- CMG has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.04, which clearly demonstrates the ability to cover short-term cash needs.
- CHIPOTLE MEXICAN GRILL INC has improved earnings per share by 17.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CHIPOTLE MEXICAN GRILL INC increased its bottom line by earning $8.75 versus $6.76 in the prior year. This year, the market expects an improvement in earnings ($10.46 versus $8.75).
- The net income growth from the same quarter one year ago has significantly exceeded that of the Hotels, Restaurants & Leisure industry average, but is less than that of the S&P 500. The net income increased by 15.3% when compared to the same quarter one year prior, going from $72.30 million to $83.38 million.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 88.47% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- You can view the full analysis from the report here: CMG Ratings Report