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Why Chipotle Stock Was Slipping Today

By Jeremy Bowman – Apr 13, 2020 at 3:34PM

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An analyst's price cut helped push the burrito chain's shares lower today.

What happened

Shares of Chipotle Mexican Grill (CMG -1.95%) were sliding today on the broader sell-off in the market and after one analyst cut his price target on the stock. Investors seem to be getting wary as earnings season is about to start, and restaurant stocks such as Chipotle are likely to post dismal numbers due to the coronavirus.

Shares of the burrito roller were down 5% as of 2:45 p.m. EDT Monday, while the S&P 500 had fallen 1.7% at the same time.

Customers waiting on line at a Chipotle restaurant

Image source: Chipotle.

So what

This morning, Wedbush analyst Nick Setyan cut his price target on Chipotle from $980 to $860, though he maintained his outperform rating on the stock. Setyan said that growth in digital and delivery could offset some of the losses from the closure of dining rooms, and he predicted that Chipotle could gain market share over the long term as smaller chains and independent restaurants are likely to falter in the face of an extended coronavirus outbreak. Nonetheless, the lower price target shows that investors should temper their expectations for the stock's near-term growth.

Restaurant stocks were down broadly today as investors were perhaps adjusting their expectations after a significant recovery in the sector in recent weeks. Though there are signs that new coronavirus cases are plateauing in the U.S., most public health experts have said the economy shouldn't begin to reopen until May at the earliest.

Now what

Meanwhile, first-quarter restaurant earnings are on the horizon, which could give investors a dose of reality about the sector's challenges. Chipotle is set to report first-quarter earnings on April 21. Analysts have adjusted their expectations lower since the outbreak started and now expect revenue to increase 10.1% to $1.44 billion and for earnings per share to fall from $3.40 to $3.09. Even with the crisis, Chipotle shares remain pricey, trading at a P/E above 50. So a disappointing report could lead to a significant sell-off.

Jeremy Bowman owns shares of Chipotle Mexican Grill. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

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Chipotle Mexican Grill, Inc. Stock Quote
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