Chipotle downgraded by excessive labor costs

Shares in Chipotle Mexican Grill Inc. were falling slightly Wednesday after an analyst downgraded the stock, claiming excessive labor costs. Bank of American Merrill Lynch downgraded Chipotle and cut its earnings targets for 2018 and 2019, saying the struggling restaurant chain will have trouble cutting back labor costs any further than it already has.

"We are downgrading Chipotle to Underperform from Neutral as we believe, assuming no significant tax reform, that 2018 and 2019 consensus EPS needs to drop at least 10 percent," analyst Gregory Francfort write in a note Wednesday. "We believe further gains from trimming hours will prove difficult which limits the opportunity to get labor below 27 percent of sales even if traffic recovers."

According to the report and CNBC, "the average weekly hours per full and part time Chipotle crew member were cut from a high of 34.6 in 2006 to 21.7 in 2016."

In early Wednesday trading, shares in Chipotle were down around 2 percent, falling $6.58 to around $322. Chipotle will announce its third-quarter earnings on Oct. 24.

The company has been testing new products and initiatives to drive traffic to its restaurants after its struggles with food safety outbreaks and subsequent setbacks. Chipotle recently launched its own queso nationwide due to growing competition from California-based Del Taco.