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Why Chipotle Shares Sank Nearly 7% Friday

By Daniel Miller - Mar 27, 2020 at 11:10AM

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Here's why analysts downgraded Chipotle -- and why it shouldn't matter for long-term investors.

What happened

Shares of Chipotle Mexican Grill (CMG 1.17%), a massive player in the fast-casual restaurant industry, dropped nearly 7% during early Friday trading after investors absorbed two analyst downgrades and a broader market decline.

So what

You'd be hard pressed to find an industry harder hit by COVID-19 coronavirus fear than the restaurant industry. However, there's been a clear separation within the industry: Restaurants that can offset some of their dine-in revenue through delivery, carryout, or drive-through have been more resilient.

CMG Chart

CMG data by YCharts.

Chipotle has been hit with multiple downgrades this week, with Morgan Stanley lowering its price target to $602 per share, KeyBanc lowering its target to $790 from $960, and Bernstein lowering to $855. While KeyBanc analyst Eric Gonzalez significantly dropped his price target, he also believes that Chipotle is one of the restaurants best positioned to emerge from the COVID-19 crisis in a position of strength.

A large burrito sliced in half.

Image source: Getty Images.

Now what

Investors would be wise to take analyst downgrades with a grain of salt. Already, Chipotle is making moves to help offset potential sales declines by expanding its delivery through Uber Eats with "no-contact" deliveries as well as free delivery from March 15 through March 31. Chipotle is also a great example of a company with no debt and roughly $880 million in cash and investments, meaning it has the financial strength to weather the storm.

Yes, Chipotle, like nearly all restaurants, will be hurt in the near term due to the COVID-19 coronavirus's negative economic impact, but analysts' downgrades won't stop this company from reaching its long-term potential once the outbreak is under control.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
$1,658.29 (1.17%) $19.20
Morgan Stanley Stock Quote
Morgan Stanley
$88.89 (2.93%) $2.53

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