Shares of Chipotle Mexican Grill Inc. (NYSE:CMG) declined 5.4% on Friday after an analyst at Cowen downgraded the fast-casual burrito chain. More specifically -- and though we usually take Wall Street's demands with a grain of salt -- Cowen's Andrew Charles lowered his rating for Chipotle to underperform from market perform, and simultaneously reduced his per-share price target to $250 from $370. Chipotle stock closed today at almost exactly $300 per share.
To justify his pessimism, Mr. Charles pointed to a proprietary survey of 2,500 consumers that indicated that perception of Chipotle's quality and value are close to their lowest levels since the company's big food-safety scare in 2015. Charles also expressed doubt that Chipotle's nationwide queso rollout will bolster sales, and argued that its planned price increases at this stage would be "imprudent."
During Chipotle's most recent quarterly call in late July, management noted that overall resistance to already implemented price increases in select markets was low. Even so, that doesn't guarantee it will push forward with another round of increases just yet.
"While we would like to execute the price increase on the next tier of the market some time in the fall," stated Chipotle CFO Jack Hartung at the time, "the exact timing will depend on the timing of a possible queso rollout and the consumer sentiment and visit habits following the events of last week."
That, of course, was a reference to the then-recent Norovirus outbreak at a single Virginia location that renewed consumers' skepticism of the chain. And for perspective, as per a press release earlier this week, Chipotle has decided to add queso to its menu at all U.S. restaurants starting on September 12, 2017. So if Chipotle opts to push forward with planned price increases at this stage, I'm inclined to believe it has a better perspective on the decision -- and confidence in the state of its business -- than Cowen's limited survey.
As it stands, however, Chipotle won't release third-quarter results until the end of October. Investors will need to wait until then to get a taste of whether Cowen's criticisms hold merit.