Cowen Analyst Thinks Chipotle’s Stock Will Tank 20%

Wall Street firm Cowen is making it loud and clear that they are not feeling positive about Chipotle shares.

A Cowen analyst has predicted that the stock will drop almost 20% due to weaker than expected sales and has reiterated an “underperform” rating on the stock as well as a $250 price target.

Analyst Andrew Charles believes the burrito restaurant chain’s third quarter sales are going to be below expectations.

According to Charles, “With proprietary survey data indicating Chipotle’s quality perceptions are near trough levels, we believe a more holistic brand halo is needed to sustainably accelerate sales, rather than one product as indulgent as queso.”

“In our prior analysis we saw the Week 1 queso lift progressively decelerate through Week 2. This trend of a deteriorating lift from queso intensified through Week 3 to end 3Q,” he also wrote.

“We view the data as supportive in our belief that queso is unlikely to be a sustainable driver of sales.”

“We are concerned upcoming efforts to drive sales are not enough to improve these measures and in turn will not drive upside to investor same store sales expectations,” he also explained.

“In order for us to get more constructive on shares, a rebound in at least one of these metrics is necessary, preferably on quality perceptions given this was the brand’s historic strength.”

Compared to Thursday’s closing price, the firms price target is 19.5% lower.

Chipotle spokesperson Chris Arnold responded and said, “We won’t get into details on sales trends until we release our third quarter earnings later this month, but I will note that we moved queso from market-wide testing to a national rollout because we were encouraged by the results, both in terms of feedback in consumer research and sales … What we have seen in terms of brand health and consumer sentiment is quite different than what the Cowen report suggests. We conduct ongoing research into consumer sentiment that looks at a number of brand health measures. Rather than providing a look at any single moment in time, that research provides an indication of where consumer sentiment stands on an ongoing basis. What we are seeing there is that we are closer to the levels we were seeing in early or mid-2015 (pre-crisis) than we are to the troughs, with many metrics at or near pre-crisis levels.”

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