The shares of Chipotle Mexican Grill (CMG - Get Report) are falling after the company last night reported lower than expected revenue and divulged that its same-store sales had plunged more than 14% last quarter. However, a number of firms responded positively following the report, with Wells Fargo upgrading the stock and Piper Jaffray recommending that patient investors buy the shares. Conversely, Deutsche Bank and Jefferies continue to express caution about the company's outlook.
WHAT'S NEW: Chipotle reported Q4 EPS of $2.17, versus the consensus outlook of $1.86. However, the company's revenue came in slightly below expectations and its same-store sales plunged 14.6% versus the same period a year earlier, in-line with its previous guidance. Chipotle's sales have plunged after an E coli outbreak in multiple states was traced to its restaurants. Yesterday, the company said that the E.coli incidents are over, but warned that the upcoming year would be "difficult" in comparison with its historical performance.
BULLISH TAKE: Wells Fargo analyst Jeff Farmer upgraded Chipotle to Outperform from Market Perform. After studying the impact of food borne illness outbreaks on restaurant chains, Farmer says that same-store sales declines can be cut in half six months after incidents occur. Moreover, the same-store sales of affected companies can rise 12-15 months after the incident, the analyst stated. Although Chipotle's bottom line will be pressured as it spends more to improve its sales, the company's stock can rise as its same-store sales rebound, according to Farmer, who raised his price target range on the shares to $500-$530 from $420-$450. Agreeing with Farmer, Piper Jaffray analyst Nicole Miller Regan wrote that the company's increased spending would weigh on its bottom line this year, but that its strategic initiatives support a positive outlook on the stock over the longer term. The company will have a number of near-term positive catalysts, including interim comp sales updates and its employee meeting next week, said Regan, who kept an Overweight rating on the shares but cut her price target to $479 from $500.
BEARISH TAKE: Comparisons between Chipotle and other companies that experienced similar situations are "irrelevant," since "no concept has been so loved and (then) so abandoned," wrote Deutsche Bank analyst Karen Short. She believes that consumers were already becoming less enthusiastic about Chipotle before the E.coil outbreak, and she kept a Hold rating on the shares following its report. Jefferies analyst Andy Barish lowered his price target on the stock to $390 from $420, forecasting that the company's results would be "volatile" while its outlook will remain "uncertain" going forward. The analyst kept a Hold rating on the restaurant chain's stock.
PRICE ACTION: In morning trading, Chipotle dropped 7% to $442.50.