Why Chipotle Mexican Grill, Inc. Slipped This Morning

Does this analyst make a good case or is it just more noise from Wall Street?

Jan 24, 2014 at 10:19AM

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Chipotle Mexican Grill, (NYSE:CMG) slipped 2% this morning after Wedbush downgraded the burrito specialist from outperform to neutral.

So what: Along with the downgrade, analyst Nick Setyan planted a price target of $510 on the stock, pretty much in line with Thursday's closing price. While momentum traders might be attracted to the stock's strength in 2013, Setyan thinks that much of the good news is now baked into Chipotle's valuation, limiting upside for 2014.

Now what: According to Wedbush, Chipotle's risk/reward tradeoff isn't too enticing at this point. "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," noted Setyan. "Our checks of 10% of company-owned locations indicate Q4 SSS growth is likely tracking between 6-7%, in line with consensus of 6.7%." With Chipotle shares trading at a PEG ratio above 2, it's easy to understand Wedbush's cautious stance. 

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Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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