Chipotle Mexican Grill Inc.’s stock dropped 1.3% in light premarket trade Tuesday, after Wedbush Securities turned bearish on the fast-casual restaurant chain, citing an “overly optimistic” valuation. Analyst Nick Setyan cut his rating to underperform, after being at neutral since January 2014. He slashed his stock price target to $400, which is 16% below Monday’s closing price, and the lowest his target has been since April 2013, from $450. Setyan said the recent pullback in the stock is no reason in itself to own them, as unit economics may not rebound even if sales do. But he believes the “best-case” scenario is for sales to recover in 2018. “We model a gradual rebound in traffic through 2016, with upped near-term marketing the lone driver to point to (though the ability to sustain transactions absent couponing remains to be seen),” Setyan wrote in a note to clients. The stock has tumbled 28% over the past year, as E. coli and norovirus outbreaks from Chipotle’s restaurants weighed on sales and consumer sentiment, while the S&P 500 has lost 1.2% over the same time.
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