There is a very painful process that long-term investors have to endure sometimes. It is when growth stocks begin to reach maturity and have to simply become cyclical stocks. This is a time when earnings and sales multiples and growth expectations begin to look more and more like any old S&P 500 stock. This is may not be the exact situation for Chipotle Mexican Grill, Inc. (NYSE: CMG), but it is certainly a scenario that investors should be considering.
Chipotle is still a growth stock. The problem is that it’s no longer growing as rapidly, and its stock is no longer generating endless returns for investors. And after such strong growth, many investors need to start wondering what sort of earnings multiple the stock should have.
Oggonomics pointed out last October that slower growth had altered its strategic investors case. The stock was around $60 at that time, more than double its share price from early 2023. Wall Street also saw Chipotle rising into the high-$60s or even the mid-$70s at that time. Now the stock is under $50 after its latest earnings report.
Chipotle should face very few tariff issues, but it is far from immune to the economy and consumer spending. The new earnings report signals that consumers are looking to save money via fewer visits as the economy falters. And one issue that Chipotle faces is that its casual dining price is often more than comparable to food prices at full-service restaurants.
The good news is that Chipotle has a loyal customer base (with digital sales growth at 35%!). The bad news is that they cannot ignore the economy. Now Chipotle is claiming it will focus on the value proposition and that it will earn every transaction, with higher marketing efforts and monitoring spending — code that investors should understand as lower ticket items and lower margins. Chipotle’s comparable store sales dropped from a year ago as consumers are buying fewer high-priced burritos on mounting recession fears. And not all analysts believe Chipotle’s margins are a concern.
Again, Chipotle is still growing and it is not in danger of facing a no-growth scenario. It has already faced inflation-type pressures in the last couple of years. It has to feel the same pressure as other restaurants face for wages. And rent renewals are painful for any restaurant right now. And now consumer spending is softer.
Last October Chipotle was already facing slower growth and lower same-store sales growth ahead. And at 460 at the time it was valued at about 55-times expected 2024 earnings and 46-times 2025 earnings. Zooming to April of 2025, Chipotle’s last $49.50 share price values it at 40-times 2025 expected earnings (per share) and 34-times 2026 expected earnings.
Wall Street is no longer in the perma-bull view on Chipotle with endless “Buy” and “Outperform” ratings as far as they eye can see. While most analysts have Buy and Outperform ratings, the reality is that those former upside price targets are becoming much more moderate. Some of that is simply because the stock has pulled back, but some is because of the economy and because of a cautious consumer.
ALSO READ: WALL STREET GUTS APPLE, AMAZON, MICROSOFT, NVIDIA
As of April 24, here are the fresh post-earnings analyst calls that have been seen on Chipotle with price target cuts and maintained ratings:
- Target cut to $52 from $56 at Barclays (Maintained as Equal-Weight)
- Target cut to $57 from $64 at Evercore ISI (Maintained as Outperform)
- Target cut to $58 from $60.00 at KeyBanc Capital Markets (Maintained as Overweight), cut to $60 from $64 a week earlier
- Target cut to $65 from $67 at Morgan Stanley (Maintained as Overweight)
- Target cut to $52 from $59.00 at Piper Sandler (Maintained as Neutral)
- Target cut to $56 from $62 at R.W. Baird (Maintained as Outperform), cut to $62 from $68 two-weeks earlier
- Target cut to $49 from $54 at Stephens (Maintained as Equal-Weight)
- Target cut to $57 from $60 at TD Securities (Maintained as Buy)
- Target cut to $63 from $64 at Truist Securities (Maintained as Buy)
- Target cut to $60 from $65 at UBS (Maintained as Buy)
- Target cut to $55 from $60 at Wells Fargo (Maintained as Overweight), after cutting the target to $60 from $70 shortly before earnings
BofA Securities reiterated its Buy rating and maintained its $64 price objective on Chipotle. The firm believes that advertising and the changes to the menu should bolster Chipotle’s topline. The firm also believes that Chipotle’s sourcing and efficiency initiatives will offset margin pressures., but the firm did dial down earnings expectations and comparable sales expectations based on topline numbers. BofA investor rational says:
Chipotle is one of the few high-growth restaurant companies and has numerous appealing attributes that support continued unit growth. A long growth runway with growing returns and our expectation that restaurant level margins will return to their historical peak of 27% support our Buy rating.
ALSO READ: SAFE-HAVEN STOCKS FOR TARIFFS & TRADE WARS
CFRA (S&P) maintained its Strong Buy rating but still trimmed its price target to $66 from $73 in the call. Its report summary said:
New restaurant openings (+57 in Q1) rose 21% Y/Y, vs. 15% a year ago, which could become a bigger part of long-term top-line growth in 2025. Chipotle’s international expansion is progressing steadily, with particular focus on markets such as Canada, Western Europe, the Middle East, and Mexico. At current prices, we think shares are undervalued relative to its longer term earnings growth potential. We also favor CMG’s healthy balance sheet (no debt and $745M in cash) and consistent free cash flow generation ($412M in Q1).
Chipotle was last seen trading up just 0.5% at $49.05. Its 52-week range is $44.46 to $69.26.
As a reminder, all formal ratings and formal price targets expressed here on Chipotle were issued by each outside firm independently. Oggonomics has no formal rating, nor does it maintain its own price target on Chipotle.
