Downgrades punish Chipotle shares

Associated Press

Originally published 10:56 a.m., July 24, 2008
Updated 10:56 a.m., July 24, 2008

NEW YORK — A slew of downgrades led shares of Chipotle Mexican Grill Inc. to drop today after the burrito chain reported its second-quarter profit rose 23 percent but missed Wall Street’s expectations by a penny.

Shares fell $14.06, or 16.8 percent, to $69.74 in morning trading. Earlier in the morning, the stock reached $68.40, its lowest point in more than a year. Shares have traded as high as $155.49 in the past 52 weeks.

After the market closed Wednesday, Chipotle said its profit climbed as sales rose at both new and established restaurants. Higher prices and more customers contributed to the sales boost.

But the company’s results missed analysts’ expectations by 1 cent, according to a poll by Thomson Financial.

Chipotle reported net income of $24.5 million, or 74 cents per diluted share, compared with $20 million, or 60 cents a share, in the year-earlier quarter. Revenue soared 24 percent to $340.8 million.

Chipotle also said it expects its same-store sales, or sales at stores open at least a year, to rise in the mid-single digits for the year. In the second quarter, same-store sales grew 7.1 percent.

Despite the profit rise and strong sales, JPMorgan, RBC Capital Markets, Buckingham Research and Jefferies & Co. analysts all cut their ratings on the stock.

JPMorgan analyst Steven Rees cut the company’s Class B shares to “neutral” from “oOverweight,” saying in a note to investors he was concerned the company may not be able to meet earnings expectations given higher costs and decelerating same-store sales growth. In the company’s first quarter, it reported a same-store sales rise of 10 percent.

RBC Capital Markets analyst Larry Miller, meanwhile, cut his rating to “sector perform” from “outperform” and lowered his price target to $82 from $137.

Miller said in an analyst note that although the company should return to 25 percent earnings-per-share long-term growth, that may not happen until commodity costs stabilize. Costs for cheese, protein and soy have all jumped in the past year.

Miller also noted the slowing same-store sales.

Jefferies & Co. analyst Jeff Farmer lowered his rating to “hold” from “buy.”