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Why Raymond James Anticipates a Big Win for Chipotle in Q1

One analyst sees stronger sales pushing Chipotle Mexican Grill Inc. (NYSE: CMG) shares higher. The reopening trade is a factor in this call, and as more consumers are going out again this burrito chain is looking to capitalize.

Raymond James upgraded the stock from Market Perform to Outperform with a $1,800 price target. That implies upside of 17.5% from the most recent closing price of $1,531.42.

Overall, Raymond James believes the company’s sales have fully participated in strengthening industry trends over the past four weeks, likely pushing recent average weekly sales in excess of $50,000. The firm now sees significant upside to the first-quarter expectations and expects estimates for this year and next to reset higher behind the company’s first-quarter earnings release.

Even further, the firm’s prior concerns regarding the company’s margin recovery algorithm seem less relevant in an environment where Chipotle could achieve industry leading store margins exceeding 25%. The company is also among the highest quality growth stories in the Raymond James universe.

Looking ahead to next week, Chipotle will report its first-quarter financial results on Wednesday. The Wall Street consensus estimates are $4.81 in earnings per share (EPS) and $1.73 billion in revenue. The same period of last year reportedly had EPS of $3.08 on $1.41 billion in revenue.

Raymond James raised its first-quarter EPS estimate to $5.52 from $4.41, and it expects total revenue to increase 27.5% to $1.80 billion, reflecting comps growth of 22% and average weekly sales just under $50,000. The analyst went further into its estimates going forward:

We are raising our 2021 EPS estimate by $4.83 to $26.40 which assumes:

1) comps +18.3% equating to AUV’s of $2.61M, 2) store margins of 22.6% (24.5-25.0% in 2H21), and G&A of $461M. Our 2022 EPS estimate is raised by $5.07 to $35.65 which assumes: comps +5.3% resulting in AUV’s of $2.72M, store margins of 25.4%, and G&A of $487M. Note that our ’22 estimates assume that the company’s margin recovery continues to lag management’s algo (e.g. 25% at $2.5M AUV), with 50 bp of store margin equating to ~$1.10 EPS impact on an annual basis (i.e. full store margin recovery towards 27% at $2.7M AUV would support ’22 EPS ~$39).

Excluding Monday’s move, Chipotle Mexican Grill stock had performed more or less in line with the broad markets with a gain of about 10% year to date. In the past 52 weeks, the share price was up closer to 111%.

Chipotle Mexican Grill stock traded up nearly 2% on Monday to $1,556.01, in a 52-week range of $728.00 to $1,579.52. The consensus price target is $1,655.53.