What Happened?
Shares of mexican fast-food chain Chipotle (NYSE: CMG) jumped 3.4% in the morning session after analysts at Piper Sandler upgraded the stock to Overweight from Neutral, saying its steep fall this year has already priced in weaker sales growth. The upgrade is based on the view that the stock's steep 31% drop in 2025 has already factored in investor concerns about weaker sales growth. Piper Sandler's analyst noted that while there's a debate on whether Chipotle can sustain mid-single-digit same-store sales growth, the market has already priced in a scenario where it doesn't. Even with a reduced price target of $50, the firm sees a potential upside of about 20% from current levels.
Adding to the positive sentiment, Jefferies also upgraded the stock to 'Outperform' from 'Neutral,' citing the recent pullback as an attractive risk-reward opportunity. This suggests a growing belief on Wall Street that the negative news is accounted for, creating a potential buying opportunity.
After the initial pop the shares cooled down to $42.62, up 2.3% from previous close.
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What Is The Market Telling Us
Chipotle’s shares are not very volatile and have only had 6 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The previous big move we wrote about was 19 days ago when the stock dropped 13.6% on the news that the company reported disappointing second-quarter results and cut its full-year sales forecast, citing a challenging consumer environment. The fast-casual chain’s comparable-restaurant sales fell by 4% in the second quarter, a steeper decline than analysts had anticipated. This drop was primarily driven by a 4.9% decrease in customer transactions, indicating fewer people visited its stores. While total revenue rose 3% to $3.1 billion, it fell slightly short of Wall Street estimates. The most significant concern for investors was the company's revised outlook. Chipotle now projected its full-year comparable sales to be “approximately flat,” a sharp downgrade from its previous forecast of “low-single-digit” growth. Management attributed the weaker performance and outlook to ongoing volatility in consumer spending.
Chipotle is down 28.8% since the beginning of the year, and at $42.62 per share, it is trading 35.6% below its 52-week high of $66.16 from December 2024. Investors who bought $1,000 worth of Chipotle’s shares 5 years ago would now be looking at an investment worth $1,836.
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