(This is an excerpt from an article I originally published on Seeking Alpha on March 22, 2016. Click here to read the entire piece.)
Last week, March 17, 2016, Jefferies analyst Andy Barish downgraded Chipotle Mexican Grill (CMG) to a sell from neutral and cut his price target from $390 to $360. {snip}
Source: FreeStockCharts.com
I first read about the downgrade in a Marketwatch article: “‘Fickle’ millennials blamed for Chipotle’s downward spiral.” This headline grabbed my attention because millennials are so often blamed/credited for various trends and shifts but sometimes with tenuous evidence. {snip}
{snip} I am not able to critique the demographic model used in the downgrade because Jefferies has turned it into a proprietary tool. Instead, I have to read a bit between the lines. {snip}
Reading between the lines, I read an assumption that instant social media enables Millennials to exercise their fickle nature. Moreover, their presumed lack of loyalty means Millennials are also unforgiving. To the extent CMG can solve its food safety issues and re-generate confidence in its customers, I think the fickle Millennials getting the blame for sending CMG’s shares downward will give the restaurant more chances in due time. {snip}
I also find it instructive that Jefferies has recently helped to bring public several restaurant IPOs that have apparently not been able to appeal to defecting (aka fickle) Millennials. {snip}
Source: FreeStockCharts.com
Barish has a well-established history following Chipotle Mexican Grill. {snip}
Although I am skeptical of the latest Jefferies call, I share Barish’s surprise that CMG has been able to retain a lofty valuation through the current mess. {snip}
Going forward, the trade on CMG has to respect the current breakdown with the high valuation making the stock vulnerable to additional downgrades and any more bad news. {snip}
Be careful out there!
Full disclosure: long CMG shares, put spread, and call options
(This is an excerpt from an article I originally published on Seeking Alpha on March 22, 2016. Click here to read the entire piece.)