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Action Alerts Plus Sees Potential In Chipotle

The case for shares of the fast-casual Mexican restaurant to hit $2,000.
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First of all, Chipotle  (CMG) - Get Chipotle Mexican Grill, Inc. Report may be one of the biggest surprises on market for a lot of investors. Sure, we all expect the FAANGs to command huge stock valuations. But how many people knew that the fast-casual Mexican restaurant had a time-of-writing price above $1,750 per share?

Now, the team at Action Alerts Plus sees even better things in the future for Chipotle Mexican Grill. They recently wrote:

“A new report from Black Box Intelligence shows restaurant sales rose 8.3% year-over-year in November compared to November 2019 [pre-pandemic]. The firm pointed to a better-than-expected showing for fast casual restaurants, the category that houses Chipotle Mexican Grill, and larger check sizes. Black Box also reported the first week of December restaurant sales ‘posted stronger sales growth than the monthly sales growth reported for August, September and October.’"

The team added that "We remain rather comfortable with our $2,000 price target, given CMG shares are currently trading at a price/earnings to growth ratio near 1.5 compared to 3.7 for the shares of Domino's  (DPZ) - Get Domino's Pizza, Inc. Report, while Yum Brands  (YUM) - Get Yum! Brands, Inc. Report and Papa John's   (PZZA) - Get Papa John's International, Inc. Report are at 2.0 and 2.36, respectively. Here's the thing, Chipotle is slated to grow its earnings at a compound annual growth rate of 33% over the 2019-2022 period vs. 17% for Domino's and just under 12% for Yum Brands."

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The team concluded "As confidence in Chipotle's ability to execute and deliver on that expected earnings per share, we should see its PEG ratio expand further than the 1.8 that is derived with our current price target. And because some will likely ask, all things status quo, a PEG ratio of 2.0 implies a CMP stock price closer $2,200.”

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