Test Queso, Get Upgrade: Analyst Turns Bullish On Chipotle

All Chipotle Mexican Grill, Inc. CMG needed to do was test queso to push Maxim analyst Stephen Anderson to upgrade his rating to Buy and raise his price target from $440 to $470.

"We contend the introduction of queso - a Mexican cheese dip - which now is in test, will be an important catalyst for Chipotle in 2018," Anderson wrote in a note. "We estimate queso alone will add as much as 200 basis points to same-restaurant sales in 2018, with about half of the increase coming from higher traffic, while providing an incremental margin lift."

This is a major shift in sentiment for Anderson as he held a Sell rating on the stock from March 2016 to February 2017, and he just recently upgraded to Hold.

What Makes A Cheese Dip So Intriguing For Investors?

Chipotle has been testing three items at its “NEXT Kitchen” in New York City including margaritas, new salads, and queso. The note expects Chipotle to be rolled out nationwide, starting in 2018.

Anderson pointed out, “Queso has been offered for years by Chipotle’s chief rival, Qdoba Mexican Eats JACK). We believe Chipotle’s queso is differentiated enough to be not only a potential traffic driver in its own right, but also take market share from immediate rivals, including Qdoba. Although we acknowledge the risk of reduced throughput remains, we believe the potential sales and margin upside may be more than enough to offset this risk.”

With the recent slide in Chipotle shares, Anderson believes now is a great time to buy the dip and participate in Chipotle's recovery; the company reports earnings on July 25.

To read the latest and exclusive financial news, visit the Benzinga Pro news wire.

Image credit: Chis Potter, Flickr