Bank of America Merrill Lynch downgraded Chipotle and cut its earnings targets for 2018 and 2019.
“We are downgrading Chipotle to underperform from neutral, as we believe, assuming no significant tax reform, that 2018 and 2019 consensus [earnings per share] needs to drop at least 10 percent,” analyst Gregory Francfort wrote in a note Wednesday. “We believe further gains from trimming hours will prove difficult, which limits the opportunity to get labor below 27 percent of sales, even if traffic recovers.”
Chipotle spokesperson Chris Arnold told CNBC in an email that, on the contrary, it has increased the working hours for laborers after downsizing.
“We absolutely have not cut hours. In fact, we have recently increased scheduled hours for our crew so that our teams would be ready to prepare and serve our new queso. The Bank of America analysis is making estimates and conclusions about our management practices over a 12-year timeframe, and the scale of our business and labor wages have changed dramatically over that time.”
The Bank of America analyst lowered his 2017 earnings estimate to $7.40 from $7.60 and reduced his 2018 estimate to $9.50 from $10.50.
Soon after the news surfaced, the company’s stock fell more than 2 percent.
“[Chipotle stock] is starting to form a base down at the $300 level,” Matt Maley, equity strategist at Miller Tabak, said Wednesday on CNBC’s “Power Lunch.” “It tested that level back in August, again in September, again earlier this month in October, and it has held [that level] each time.”
“What’s more, the stock is still trading above its 50-day moving average in spite of the negative sentiment on Wall Street, another positive sign,” added Maley.
“We’re at a key juncture on a technical basis right now,” explained the strategist. “If the stock continues to roll over and breaks meaningfully below $300, that’s a big problem.”
“However, if it can rally from here and break above its highs from last weekend at the $332 level, it’s going to show that, at least on a technical basis, the worst might actually be behind it,” he said.