Bank of America Downgrades Chipotle For This Reason

Chipotle was given a downgrade this week by Bank of America Merrill Lynch, and for an interesting reason.

The bank thinks the burrito restaurant chain pays its employees too much.

According to the bank, “Further gains from trimming hours will prove difficult which limits the opportunity to get labor below 27 percent of sales even if traffic recovers.”

The firm not only cut its rating on Chipotle but its earning targets as well. For 2017 earnings, the firm is expecting $7.40 from a previous target of $7.60. For 20018, the forecast is $9.50 from $10.50.

Analyst Gregory Francfort wrote in his note, “We are downgrading Chipotle to Underperform from Neutral as we believe, assuming no significant tax reform, that 2018 and 2019 consensus EPS needs to drop at least 10 percent.”

“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,” he further noted.

Disclaimer: We have no position in Chipotle Mexican Grill, Inc. (NYSE: CMG) and have not been compensated for this article.