Raymond James Upgrades Chipotle Mexican Grill After Menu Price Hike

Chipotle Mexican Grill, Inc’s CMG recent menu price hikes are likely “to stick,” lending significant upside to the consensus expectations for the back half of the year, according to Raymond James.

The Chipotle Mexican Grill Analyst: Brian Vaccaro upgraded the rating for Chipotle Mexican Grill from Outperform to Strong Buy, while maintaining the price target at $1,800.

The Chipotle Mexican Grill Thesis: The company’s value proposition is strong and the price hikes to cover an increase are likely to cause limited customer resistance, Vaccaro said in the upgrade note.

“While recent wage increases will require an adjustment to management's margin recovery algorithm (expected on 2Q call), we remain confident in its ability to recapture best-in-class store margins (25%+) in 2022 (assuming AUVs ~$2.8M),” the analyst wrote.

“We also remain bullish on the company's ability to reaccelerate unit growth into the high-SD % range over the next couple of years while sustaining powerful ROIs (40-50% initially, increases to 60%+ in subsequent years),” he added.

The stock has declined by around 11% since mid-April, “which we believe creates a compelling entry point with significant upside potential,” Vaccaro noted.

CMG Price Action: Shares of Chipotle Mexican Grill had risen by 2.44% to $1,399.54 at the time of publication Monday.

(Photo: Chipotle)