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Chipotle's Unit Economics Means It's 'When' Not 'If' Things Improve

Piper Jaffray's Nicole Miller Regan maintained an Overweight rating on Chipotle Mexican Grill, Inc. (NYSE: CMG), while raising the price target from $479 to $590.

"Despite currently (and severely) negative same-store sales trends of late, we remain confident that the underlying unit-level economics of the business are solid," Regan said, while adding that leverage existed for the company, "when" (not "if") trends improved.

Pointing out that store-level engagement continued to be robust, the analyst mentioned that "human capital" would play a significant role in Chipotle Mexican Grill's recovery, with store-level employees continuing to champion the brand.

Related Link: Argus Still Concerned With Impact Of Chipotle Outbreaks; Favors Starbucks

"Globally, restaurateurs are engaged on a local basis, which should yield consistent LT development (whether domestic or int'l) and help support growth of the core Chipotle brand and/or the company's burgeoning portfolio of secondary growth concepts," according to the Piper Jaffray report.

According to Piper Jaffray's annual Benchmark Book analysis for 2015, an average fast-casual operator generated cash on cash return of 41 percent, based on a segment AUV of $1.9 million and segment SLM of 21 percent.

"As CMG had fewer shares o/s, a proj. 1% comp change should equate to an incremental $0.38 in EPS when trends return to positive territory," the analyst added.

Latest Ratings for CMG

Feb 2016

Piper Jaffray

Maintains

Overweight

Feb 2016

Deutsche Bank

Downgrades

Hold

Sell

Feb 2016

Nomura

Initiates Coverage on

Neutral

View More Analyst Ratings for CMG
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