Wall Street douses Chipotle's fiesta

[July 21, 2012]  NEW YORK (AP) -- Shares of Chipotle Mexican Grill plunged 22 percent after its second-quarter sales numbers and rising costs led to a spate of downgrades on Wall Street.

THE SPARK: The Denver company said late Thursday that its revenue in the second quarter rose by 21 percent. Although that would be impressive for most other companies, it missed analyst expectations for Chipotle.

THE BIG PICTURE: Chipotle Mexican Grill Inc. has been a favorite among diners and investors and its stock price has grown more than four-fold in the past five years. But some have begun to wonder if a burrito bubble has been building in its stock. Shares hit an all-time high about $440 per share in April and the numbers released this week appeared to confirm suspicions that investors had become too optimistic.

Chipotle's net income soared more than 61 percent in the second quarter and total revenue rose by nearly 21 percent to $690.9 million. But analysts polled by FactSet expected revenue of $704.8 million.

Revenue from its restaurants open at least a year increased 8 percent, but that also fell short of some projections. That's a key measure of financial performance as it strips out the volatility of recently opened or closed stores.

THE ANALYSIS: Kelter of Goldman Sachs removed the company from the conviction buy List and downgraded the stock from `Buy' to `Neutral.' He said moderating traffic and slower sales for new restaurants are among "early warning signs." Kelter lowered his price target to $365, from $475.

Janney Capital Markets and Deutsche Bank also downgraded the company.

Cowen and Co. analyst Paul Westra said the sales numbers signal a rapid narrowing of Chipotle's growth in recent years. And believes they could signal the "middle age" for the brand and that 2012 will be a transition year toward more normalized sales growth.

SHARE ACTION: The stock slid $89.97 to $313.89.

[Associated Press]

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