Analysts Review Chipotle's Q2: 'We Continue To View 2018 As A Transition Year'

Chipotle Mexican Grill, Inc. CMG's second-quarter print Thursday was largely interpreted by the sell-side as a signal that the restaurant chain's turnaround is on track. 

The Analysts

• PiperJaffray’s Nicole Miller Regan reiterated an Overweight rating on Chipotle with a $530 price target.
• Jefferies’ Andy Barish maintained a Hold rating with a $400 price target.
• William Blair’s Sharon Zackfia maintained a Market Perform rating.
• Wells Fargo’s Jon Tower maintained a Market Weight rating and raised the price target from $405 to $418.

The Thesis

• PiperJaffray's Regan considers Chipotle’s results to be better than expected and optimistic in a transition year.
• The firm's bullish estimates are driven in part by an 8-percent sales increase to $1.3 billion, the analyst said. 
• “Near-term catalysts include operations, marketing and digital, while the longer-term five-pillar strategy should produce higher AUVs and margins. Ongoing is a foundational customer review that should further inform the prioritization and pace of strategic implementation,” Regan said.
• Jefferies' Barish commends Chipotle's resilience considering its norovirus challenges in 2017. While Chipotle's food safety issues set back its progress, they ignited the development of better guest experience and marketing that will contribute to the fast casual chain's efforts going forward, he said. 
• Chipotle's quarterly print arrived largely as William Blair expected, Zackfia said. 
• “Chipotle’s stock surged more than 6 percent in the aftermarket as investors cheered the increase in comp guidance," the analyst said.
• "While comps should improve in the third quarter on easier comparisons with a likely return to positive traffic, we continue to view 2018 as a transition year with the potential for more tangible results in 2019 and beyond.” she said.
• Labor costs rose to 27 percent on wage inflation of about 6 percent, according to William Blair. 
• Wells Fargo's Tower focused heavily on Chipotle’s efforts to make its brand more visible and accessible through digital and media presence. These are important strategies to regain traffic growth, as many fast casual restaurants have begun to embark on similar development plans, he said. 
• The data reflects a 33-percent increase in digital sales, Tower said. 

Price Action

Chipotle shares were trading up nearly 6 percent at $473.37 at the time of publication Friday.

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Photo courtesy of Chipotle.