Chipotle Mexican Grill (CMG) Price Target Raised at UBS as Momentum Supports Further Upside

October 4, 2021 6:36 AM EDT
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Price: $1,830.93 -0.53%

Rating Summary:
    28 Buy, 16 Hold, 1 Sell

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    Up: 13 | Down: 13 | New: 72
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UBS analyst Dennis Geiger raised the price target on Chipotle Mexican Grill (NYSE: CMG) to $2,100.00 per share from the prior $1,850.00 as SSS momentum likely continues.

Geiger argues there’s still further upside in CMG shares amid multiple catalysts to support continued comparable sales momentum, accelerating unit growth, and margin expansion.

“CMG appears positioned for elevated sales growth over the balance of '21 and LT given continued digital gains, loyalty expansion, new menu items, and a further recovery in dine-in traffic & throughput opportunities. For earnings on 10/21, we model comps at the upper end of the targeted range and a modest earnings beat relative to Consensus. We anticipate solid consumer demand for recently launched smoked brisket that should support momentum into 4Q. Margin pressures from labor & commodity inflation are likely to persist near-term, but we expect pricing (w/ little resistance) & top line strength can mitigate the impact to EPS,” Geiger said in a client note.

The analyst forecasts 15% 3Q sss, higher than the 13.7% consensus and guidance calling for “low to mid-double digits.) Higher-than-expected estimates are based on expectations for “continued digital gains, still elevated delivery sales, improved dining room traffic, and pricing.”

“We continue to expect CMG to benefit from return to office dynamics, w/ other drivers of sustained comp strength incl: new & recently launched menu items (quesadillas, beverages, brisket), elevated digital sales (~49% 2Q mix; retaining 80% of gains w/ 70% of traffic returning), marketing investments, loyalty (24MM members as of 9/21), throughput gains and add'l pricing in 4Q. We anticipate solid demand for the just launched smoked brisket LTO, which is priced at a 10% premium to steak and we could see a ~HSD sales mix based on historical launches and a favorable initial customer response based on our select store checks. We don’t anticipate brisket will last as long as carne asada (went through end of Feb), but should drive incremental visits from existing customers & support new customer trial,” Geiger added.

Although the analyst expects near-term Q3 margin pressure to persist in the short term, the company remains well-positioned as these pressures are likely to be offset with a strong topline.

“We don't anticipate brisket is much of a margin headwind given its pricing isn’t as dilutive as the carne asada LTO, and could even be margin % neutral depending on transaction lift. LT margin target remains intact (40% flow-through or ~50 bps for every $100K in AUV) & equates to a ~27% RLM on $3MM AUV, w/ potential upside over time from favorable Chipotlane economics as unit mix increases,” the analyst concluded.

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