Chipotle's guidance weak, but some remain buyers
Shares of the Mexican food chain fall after weaker than expected earnings forecast, yet a few analysts remain positive.
Shares of quick service restaurant operator Chipotle Mexican Grill (CMG) are lower after the company issued weaker than expected fourth quarter earnings guidance earlier this morning.
The company now forecast fourth quarter earnings per share of $1.92-$1.97 versus consensus of $2.09 per share. It also guided fourth quarter revenue to $699.2 million versus consensus of $690.86 million.
Monty Moran, co-CEO, cited a faster than expected rise in food costs in the fourth quarter, but said food inflation should level off in 2013.
Chipotle has been targeted some three months ago by hedge fund billionaire David Einhorn. He recommended shorting the stock, saying that Yum! Brands' (YUM) Taco Bell was was resurging and would start eating away into Chipotle's customers. When Chipotle posted disappointing earnings for the third quarter and Taco Bell's same-store sales were better that Chipotle's, he came out winning.
While some analysts may have changed their tune on the stock, some are still positive.
Following the disappointing guidance, research firm Jefferies said it expected the shares to be down meaningfully, adding that Chipotle's 2013 earnings could be significantly below consensus. Jefferies maintained an "underperform" rating on the stock with a $215 price target.
On a positive note, William Blair said in a note to investors this morning that Chipotle's comparable store results will likely bottom in the first quarter of this year before moving higher. William Blair viewed Chipotle's business as healthy and said they would be opportunistic buyers on any share weakness. The firm maintained an "outperform" rating on the stock.
RW Baird was positive on Chipotle as well, also saying any weakness represented a buying opportunity.
The stock initially gapped down over 10% at the open, but has since recovered and is trading lower by about 6% to $279.31 in late morning trade. The Fly notes that volume is very heavy, with nearly 1.8 million shares exchanging hands in morning action, more than twice the average daily volume.
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