BMO: 3 Possible Scenarios For Chipotle Over The Next 5 Years

Chipotle Mexican Grill, Inc. CMG continues to struggle with its reputation after a series of food safety scandals. But what will the company look like in five years?

The Analyst

BMO Capital Markets' Andrew Strelzik maintains a Market Perform rating on Chipotle's stock with an unchanged $275 price target.

The Thesis

Over the coming years, Chipotle could introduce new initiatives like breakfast, a full remodeling of its stores and changes in marketing strategy including higher spend, digital initiatives and a re-acceleration in unit growth, Strelzik said in a research report. This could lead to one of three outcomes in five years: a best case scenario, a base case optimistic outcome, and a low-end scenario, the analyst said. 

A best case scenario includes the following, Strelzik said:

• Comp growth of 6 to 6.5 percent.
• A 19.5-percent restaurant level margin.
• EPS of around $25 in 2022.
• Comp lifts at the high end of the peer group.
• Minimal dilution from breakfast.
• No increase in marketing spend.
• A stock price north of $700 per share.

BMO's base case optimistic outcome includes the following:

• Average annual comp growth of 5 percent.
• Restaurant margins at 17 percent. 
• EPS of $18 to $19 in 2022.
• A stock price of $425 to $500.

The analyst's low-end scenario includes the following:

• Average comp growth of 3.5 to 4 percent. 
• Restaurant margins at 14.5 percent.
• EPS of $11 to $12 in 2022.
• Margin dilution from breakfast.
• Increased spending on marketing.
• A stock price of $200 to $250.

Price Action

Shares of Chipotle were trading higher by 1.2 percent early Wednesday morning.

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A Chipotle Mexican Grill on Melrose Avenue in Los Angeles. Courtesy photo.