Chipotle shares closed up more than 24% Thursday and the stock was upgraded
Getty ImagesChipotle is seeing a turnaround with a new CEO and price increases, more than two years after illness outbreaks.DMAMBMCMDMEMGPREVIEWZBZBRZDZDRZFZGZQZRZSZTZU
More than two years after illness outbreaks sunk Chipotle Mexican Grill Inc.’s customer traffic and share price, the company is showing signs of a turnaround owed to a new chief executive and price hikes, analysts say.
Chipotle (CMG) reported a 7.4% revenue increase to $1.15 billion, a 2.2% same-store sales increase and earnings of $2.13 per share, up more than 33% year-over-year.
Shares closed Thursday up 24.4%.
The company was upgraded at Cowen after the results. Analysts moved the shares to market perform from underperform, and the price target was raised to $350 from $275.
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“Chipotle is in the early stages of a turnaround, led by a credible CEO with ample low-hanging fruit including marketing, digital, and menu innovation,” Cowen wrote. “We ultimately see opportunities to upgrade menu ingredients as proprietary survey data indicates near trough-level food quality perceptions.”
Chipotle named former Taco Bell chief Brian Niccol as its new CEO in February, and shares rallied right away. The first-quarter earnings announcement was his first for Chipotle. Taco Bell is part of Yum Brands Inc. (YUM).
Niccol outlined focus areas for the company’s continued growth, including elevated brand relevance, but said he’ll go into further detail on a call planned to take place before the next earnings announcement.
Despite few details, Cowen thinks the plan will include “improved marketing and menu innovation.”
The last big menu innovation push at Chipotle was around the launch of queso, which suffered in social media reviews.
SunTrust Robinson Humphrey analysts think the upcoming call will be a catalyst for Chipotle stock and “enthusiasm will grow as his turnaround plans are unveiled.”
“We expect specific targets for digital sales (+20% Y/Y to 8.8% of sales in 1Q, + vs. 8.6% in 4Q17), new product initiatives (potentially connected to extended operating hours) and new marketing creative (Mr. Niccol considers increased visibility with consumers a key opportunity),” analysts wrote. “We also expect the announcement of store closures (less than 100 are cash flow negative), but do not expect any structural changes, such as refranchising (Mr. Niccol does not believe it’s an opportunity) or optimizing the balance sheet (as least at this early stage, in our view).”
SunTrust rates Chipotle shares buy and raised the price target to $410 from $380.
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Stifel analysts are more reserved.
“Given the traffic declines and the cause of the EPS upside, we do not believe 1Q results indicate the company is on a road to recovery, but we were encouraged by the CEO’s remarks about making the brand more accessible and top-of-mind with consumers,” analysts wrote.
Chipotle raised prices around 5%, spurring a rise in average check and same-store sales.
Stifel analysts maintained their hold stock rating, but raised the price target to $325 from $275.
Raymond James analysts are also bearish, despite Niccol’s history with Taco Bell.
“We acknowledge that Niccol’s track record of success at Taco Bell combined with various opportunities for improvement at Chipotle… have the potential to drive improved results in 2019 and beyond,” wrote analysts led by Brian Vaccaro. “That said, we do not believe there is a quick/easy fix to reaccelerate comps given current sales per square foot and absolute traffic levels are well above industry peers and intense industry competition.”
Raymond James rates Chipotle stock market perform.
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Still, there’s confidence that Niccol will address the company’s biggest problems.
“Talk of restructuring to support the new strategy as well as reiteration of unit growth alleviates two of the most significant concerns around margins and topline growth,” wrote Bernstein analysts, who rate Chipotle stock outperform.
Chipotle shares are up 47.5% for the year to date, outpacing the S&P 500 index (^GSPC) , which is down 0.2% for the period.
Tonya Garcia is a MarketWatch reporter covering retail and consumer-oriented companies. You can follow her on Twitter @tgarcianyc. She is based in New York.
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