Chipotle's Price Target Lifted by Cowen After Strong Earnings

Cowen boosts its target on Chipotle to $1,550 from $1,400 and maintains its outperform rating.
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Shares of Chipotle Mexican Grill  (CMG) - Get Report dropped Thursday even as three analysts including Andrew Charles of Cowen increased their price targets on the stock after Chipotle reported stronger-than-expected earnings.

Charles lifted his target to $1,550 from $1,400 and maintained his outperform rating. Other firms that increased their price target were Barclays, Deutsche Bank. Morgan Stanley, however, lowered its target.

Chipotle shares traded 1,283.34, down 6.1%. Investors have expressed concern about Chipotle’s valuation after its 50% surge year to date amid the coronavirus pandemic. Operating profit margins also shrank in the third quarter.

“CMG's decision not to guide to an acceleration in 4Q comps over what we believe to be easing November/December compares reflects conservatism from a potentially prolonged election result as well as rising COVID-19 cases,” Cowen's Charles wrote in a commentary.

“We remain encouraged on prospects to grow 2021 comps 12.5% vs. 10.4% consensus through digital, loyalty, menu innovation and an ad budget growing 10+%, in-line with sales,” he said.

Chipotle reported third-quarter net income of $80.2 million, or $2.82 a share, compared with $98.6 million, or $3.47, in the year-earlier period. Excluding special items, the company reported earnings of $3.76 a share, beating the consensus estimate of $3.47 in a FactSet survey.

Revenue increased 14.1% to $1.6 billion, ahead of FactSet's forecast of $1.59 billion.

Digital sales tripled year over year to $776.4 million, representing 48.8% of total sales. About half the digital sales were via delivery, Chipotle said, with the rest coming from order-ahead transactions.

Restaurant-level operating margin was 19.5%, narrowing from 20.8% a year earlier and driven primarily by coronavirus-related effects.