Chipotle Mexican Grill Inc. (NYSE: CMG) was one of the best-performing restaurants over the course of the pandemic as it expanded its digital operations to deliver to consumers. While this success has been incredible, the burrito chain’s stock has taken a breather in recent months. It has not kept pace with the markets over the course of 2021, but that could be about to change, according to one analyst.
UBS upgraded it to Buy from Neutral and raised its price target from $1,575 to $1,700, implying upside of 30% from the most recent closing price target of $1,307.19.
The brokerage firm sees near-term catalysts to reaccelerate sales trends from increased dining room volumes as consumer mobility grows and elevated digital sales are retained, upcoming pricing increases, and new product and loyalty contribution. Additionally, multiple growth opportunities remain underappreciated and could support upside over time, including long-term contribution from Chipotlanes, potential for growing repurchase activity and international unit expansion.
Despite concerns around sustainability of same-store sales momentum, UBS expects an average unit volume (AUV) unlock from digital sales remaining elevated as dining room volumes increase, considering there is only a 10% to 15% digital/non-digital overlap. Sales drivers continue to resonate and appear on trend with customer wants. Separately, UBS Evidence Lab survey highlights a multiyear improvement in key brand perceptions and demand for digital, loyalty, delivery and menu variety.
UBS further detailed in its report:
Recently announced wage increases pressure the gap in coming quarters, but we expect two upcoming pricing increases will cover the margin impact. Biggest opportunities to close the gap over time are from: more pricing on delivery menu (now 17%) & broader menu, shift from delivery to digital order ahead, product mix, supply chain savings, labor efficiencies, and Chipotlanes. UBSe 2022 RLM of 25.6% on $2.8MM AUVs. Increased pricing & margin upside drives our higher ests. Fully narrowing the margin gap would represent ~$6 (or ~15%) to our 2022 EPS.
Excluding Thursday’s move, Chipotle has underperformed the broad markets, with the stock down about 5.7% year to date. In the past 52 weeks, the share price is closer to 29.5% higher.
Chipotle Mexican Grill stock traded up 3% on Thursday to $1,348.56, in a 52-week range of $964.50 to $1,579.52. The consensus price target is $1,721.19.