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Chipotle a Strong Buy as Raymond James Bullish on Menu-Price Rise

Chipotle shares were rising after Raymond James upgraded the stock to strong buy from outperform, citing the potential from a menu-price rise.
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Shares of Chipotle Mexican Grill  (CMG) - Get Report were higher after the burrito chain was upgraded to strong buy from outperform by analysts at Raymond James. 

Analyst Brian Vaccaro also set an $1,800 price target on the stock of the Newport Beach, Calif., company. The move indicates 32% potential upside from the stock's Friday closing price.

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The firm is bullish on the company's recent menu-price increase, designed to help Chipotle pay for its recent increases in employees' wages and benefits. 

The price increases create "significant upside to second-half consensus comparison expectations," Vaccaro wrote. 

Chipotle has "a very strong value proposition" and the price increases will prompt "limited customer resistance."

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Chipotle shares at last check were 2.45% higher at $1,400.75. 

"While recent wage increases will require an adjustment to management's margin recovery algorithm (expected on second-quarter call), we remain confident in its ability to recapture best-in-class store margins (25%+) in 2022," assuming annual unit volumes of about $2.8 million, Vaccaro said. 

Chipotle has boosted wages, while announcing plans to hire an additional 20,000 workers. The company projects its average hourly wage will be at $15 by the end of June.

"It made sense in this scenario to invest in our employees and get these restaurants staffed and make sure that we have the pipeline of people to support our growth," Chipotle Chief Executive Brian Niccol said at a Baird conference last week.

"And then with that, we've taken some pricing to cover some of that investment."

Chipotle expects average annual unit sales will climb to $3 million to $3.5 million in the near term, compared with the recent level of $2.4 million, Niccol said, according to Bloomberg.