CREDIT SUISSE: Chipotle is beginning the long road to recovery (CMG)

Screen Shot 2017 04 26 at 10.20.37 AMMarkets Insider

Chipotle just reported it’s best quarterly numbers since the 2015 E. coli outbreak cut the company’s stock price in half. The stock is responding, rising 4.86% as of 10:20 AM ET.

Credit Suisse analyst Jason West sent a note to clients April 26 raising his price target on the stock to $425 from $375. He reminded investors that the turnaround process is just beginning, and that there is a long and onerous road ahead.

“The pace of recovery should moderate from here as CMG begins to lap more normalized sales and expense trend,” West said. “We also continue to believe the cost of customer recapture will be higher than expected, particularly amidst a very tight labor market and increasing competition.”

West came to his $425 price target by valuing Chipotle based on “~20x 2018E EV/EBITDA”. He gave the stock a higher multiple than the 15X industry average because of Chipotle’s 8-9% new restaurant sales growth.

“We believe this pace of recovery is fully embedded in the stock at this price”, West said.

In the company’s earnings call, Chipotle did report a “payment systems breach,” which tempered gains for the stock after the close April 25. Chipotle has not released many details about the breach but Credit Suisse said “this issue could cause a moderate pullback in near-term sales trends.”

Click here for a real-time Chipotle chart.

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