Baird Spices Up Their Burrito, Upgrades Chipotle Mexican Grill (CMG)

Shares of Chipotle Mexican Grill (NYSE: CMG) are up over 3% on the session, following an upgrade from R. W. Baird Equity Research to Outperform (from Neutral) and new price target of $400 (from $315).

Analyst David Tarantino provides a "more constructive stance" on CMG, suggesting to clients that "now is a good time to revisit the stock," after years of disappointing sales and negative headlines. Tarantino highlights the appointment of new CEO Brian Niccol as an "important inflection point" and potential upside catalyst for the shares, citing confidence in Niccol's ability to lead CMG to be "better-top- and bottom-line momentum over the next 12-24 months."

The positive ratings action incorporates "a longer-term framework" on CMG, that outlines assumptions for management to "recover roughly 20% of traffic volume lost since 2015," allowing for better margin performance and stronger earnings power, ultimately leading to more positive investor sentiment. Tarantino notes that investors already appear "enthusiastic about a potential turnaround" as demonstrated by CMG's outperformance, up 24% since the CEO announcement compared to the S&P 500, up 4% over the same period.

The new valuation at $400 is based on the analyst's cash-adjusted P/E multiple of 25x on 2021 estimates and discounting back at 12%.

The new price target represents 28.3% upside from Monday's close.

StreetInsider Premium first published a variation of this article at 5:21 AM ET. Try StreetInsider Premium for two weeks free here.

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