Chipotle Target Lifted at Truist on Price Rises, Margin Potential

Chipotle price target was lifted by a Truist analyst, who cited the chain's price increases and their effect on profit margins.
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Chipotle Mexican Grill  (CMG) - Get Report shares were gently higher after analysts at Truist raised their price target on the burrito giant to $1,750 from $1,700 and affirmed a buy rating 

The new price target indicates 21% potential upside for the stock from Monday's close. At last check the Newport Beach, Calif., chain's stock was 0.9% higher at $1,465.

Analyst Jake Bartlett's recent price check showed a 4% systemwide increase in the cost of the company's steak and barbacoa offerings last week. 

The firm estimates the proteins account for 25% to 30% of an average check at the restaurant, indicating a 1-percentage-point increase in total menu prices.

"Along with delivery-menu pricing, ... the increase in steak-menu prices demonstrates management's commitment to achieving its long-term margin framework, which would drive significant upside to estimates," Bartlett said. 

Higher beef costs, up 4% last week from a year earlier, may have contributed to Chipotle's pricing decision. But the investment firm says the main driver is that stronger demand from customers for steak and barbacoa will squeeze profit margins. 

Truist estimates that only half the 1% menu-price increase will flow through to restaurant-level profit because some consumers will switch to chicken.

The firm boosted its 2021 and 2022 EPS estimates to $27.55 and $35.10 a share, respectively, from $26.97 and $34.25. 

"We expect CMG to maintain its industry dominance through its prime positioning -- quality, wholesome food, served fast at reasonable prices -- as well as other sales drivers, such as digital sales (including order-ahead and delivery), improving throughput, menu innovation and catering," Bartlett said.