Morgan Stanley Turns Bullish On Chipotle, Says Earnings Recovery Is Real

Fast casual restaurant chain Chipotle Mexican Grill, Inc. CMG is undergoing a compelling earnings recovery story led by a new management team, according to Morgan Stanley. 

The Analyst

Morgan Stanley's John Glass upgraded Chipotle Mexican Grill from Equal-weight to Overweight with a price target lifted from $413 to $600.

The Thesis

The bullish case for Chipotle's stock can now be made for three reasons, Glass said in the upgrade note. (See the analyst's track record here.)

They are: 

• Recently appointed CEO Brian Niccol said the company should see accelerating top-line growth from a rapid pace of new menu items, limited-time offers, improvements in throughput and digital opportunities including food delivery and loyalty programs, Glass said. 
• Niccol is also focused on store-level improvements, including a second make line, which is a less labor-intensive production area, the analyst said. This alone could contribute more than 100 basis points of labor benefit over time and food cost benefits, he said. 
• Investors face a shortage of growth stocks within the consumer discretionary space, which implies a higher multiple for a stock in its early stages of an earnings recovery can be tolerated, Glass said. Consensus estimates for 2019, which include a forecast for less than 4-percent same-store sales growth, are not "overly demanding," and less than one-third of Street analysts are currently recommending the stock.

Price Action

Chipotle shares were trading up 3.79 percent off the open Wednesday to $512.02. 

Related Links:

Chipotle's Stock Surge Is Thanks To Its New CEO

Chipotle Has A New Game Plan: Is Wall Street On Board?

Photo courtesy of Chipotle.