Wedbush Dishes Up 4 Reasons To Like Chipotle Mexican Grill

Chipotle Mexican Grill, Inc. CMG has shown recent momentum in its business and this could be sustained over the long term, Wedbush said in a research report.

The Analyst

Wedbush analyst Nick Setyan upgraded Chipotle Mexican Grill from Neutral to Outperform with a price target lifted from $780 to $980.

The Thesis

Wedbush hasn't held a bullish stance on Chipotle's stock since at least 2016 but the case can be made for four reasons.

1. Setyan said the restaurant is well positioned to be a leader in the "digital real estate" space and online orders should account for more than 30% of all sales by the end of 2021.
2. Chipotle is expected to show in its upcoming third-quarter report same-store sales growth of 9.5%, which is above the Street's current estimate of 8.8%. Setyan said strength is likely to come from digital orders, delivery, and increased marketing.
3. The company's menu innovation like quesadillas and new salads has yet to "kick in meaningfully." Similarly, initiatives to improve throughput will help improve comps once fully implemented.
4. The case for turning bullish on Chipotle is partly based on its stand-out ability to expand in-store margins. Margins could move higher from its unique supply chain, a dedicated digital line, and favored status with third-party delivery platforms.

Benzinga's Take

Wedbush's revised price target is based on 52 times 2020 estimated EPS. The multiple might be too rich to stomach as recent food-related illness outbreaks remain fresh in many investors' minds.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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