Chipotle Mexican Grill, Inc. (NYSE: CMG) has shown recent momentum in its business and this could be sustained over the long term, Wedbush said in a research report.
Wedbush analyst Nick Setyan upgraded Chipotle Mexican Grill from Neutral to Outperform with a price target lifted from $780 to $980.
Wedbush hasn't held a bullish stance on Chipotle's stock since at least 2016 but the case can be made for four reasons.
- Setyan said the restaurant is well positioned to be a leader in the "digital real estate" space and online orders should account for more than 30% of all sales by the end of 2021.
- Chipotle is expected to show in its upcoming third-quarter report same-store sales growth of 9.5%, which is above the Street's current estimate of 8.8%. Setyan said strength is likely to come from digital orders, delivery, and increased marketing.
- The company's menu innovation like quesadillas and new salads has yet to "kick in meaningfully." Similarly, initiatives to improve throughput will help improve comps once fully implemented.
- The case for turning bullish on Chipotle is partly based on its stand-out ability to expand in-store margins. Margins could move higher from its unique supply chain, a dedicated digital line, and favored status with third-party delivery platforms.
Wedbush's revised price target is based on 52 times 2020 estimated EPS. The multiple might be too rich to stomach as recent food-related illness outbreaks remain fresh in many investors' minds.
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