(CNBC) Chipotle has a new problem on its hands: It's paying its employees too much.
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."
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