Shares of Chipotle Mexican Grill Inc. fell 1% in premarket trade Tuesday after the stock was downgraded to neutral from overweight at J.P. Morgan. The path ahead looks difficult for the fast-casual chain restaurant as supply growth continues to exceed that of demand, wrote analysts led by John Ivankoe. "We upgraded the stock on April 14 despite known turnaround risks as we thought sequentially improving fundamentals would drive excess stock returns. Since then, fundamentals have been much worse than imagined," Ivankoe wrote in a note to clients. Chipotle has blamed operations for the lack of recovery. As Ivankoe wrote, focusing on customers and simplifying employee goals can yield success, but only if "improved operations are met with additional demand in an increasingly competitive restaurant landscape," which is not the case for Chipotle. Shares of Chipotle are up more than 4% in the last three months, but have dropped nearly 14% in the trailing 12-month period. The S&P 500 Index has gained 7% in the last three months and 21% in the last 12 months.
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