Analyst Likes Chipotle's New CEO, Upgrades Stock To Buy

Casual fast-food restaurant chain Chipotle Mexican Grill, Inc. CMG, under the leadership of a new executive team led by CEO Brian Niccol, remains on track for a multi-year long recovery, according to Argus.

The Analyst

Argus' John Staszak upgraded Chipotle from Hold to Buy with a new $540 price target.

The Thesis

Chipotle's recently appointed CEO brings the necessary leadership to spur accelerating same-store sales and earnings growth over the coming years, Staszak said in a note. The executive will likely see success through digital offerings like online ordering and mobile payments, new menu offerings, a greater push into catering and deliveries, and an effective marketing program. The multiple initiatives is intended to attract more low-income and middle-income consumers, which in turn will increase its overall market share.

Niccol is also focusing on re-establishing Chipotle "formerly strong brand" at a time when it's slowing down its expansion plans from 183 new restaurants last year to 130-150 new units this year, the analyst wrote. The company's $232 million in cash and cash equivalents (with no long-term debt) will be used to fund its unit expansion, which also implies a dividend payout to investors is unlikely.

Chipotle's stock at current levels fails to value the company's prospects for growing same-store sales and earnings growth at 40.9x 2019E EPS. Staszak said this is below the midpoint of the stock's 10-year annual average of 16x to 76.

Price Action

Shares of Chipotle were trading higher by more than 1 percent early Wednesday morning after closing at $426.56.

Related Links:

Chipotle's Q1: The Wall Street Reaction

Chipotle CEO Says Top Priority Is To Remind People 'Why They Love' The Fast Casual Restaurant

Image credit: Chis Potter, Flickr