Chipotle upgraded to buy with 11% upside potential on brand resilience through the pandemic

Reuters

  • Chipotle’s resilient brand amid the COVID-19 pandemic has led Stifel to upgrade the fast-casual Mexican eatery to Buy from Hold in a note on Tuesday.
  • Stifel assigned a $1,500 price target on the stock, representing potential upside of 11% from Tuesday’s close.
  • Stifel sees Chipotle benefiting from increased consumer mobility in 2021 and believes the company has one of the most compelling unit growth prospects within the restaurant industry.
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Chipotle’s resilience as a brand throughout the COVID-19 pandemic sets the company up well into the future for further gains in its business, according to a Tuesday note from Stifel.

The Wall Street firm upgraded shares of Chipotle to Buy from Hold and assigned a $1,500 price target, representing potential upside of 11% from Tuesday’s close.

Stifel expects Chipotle to benefit from increased consumer mobility in 2021 as the COVID-19 pandemic wanes thanks to the rollout and administration of successful vaccines developed by Pfizer/BioNtech and Moderna.

“In our proprietary consumer survey, over 18% of respondents were most excited to visit Chipotle once they felt safe,” Stifel said.

On top of that, Chipotle has “some of the most compelling unit growth prospects within the restaurant industry,” Stifel said, which could fuel growth in the company for years to come.

Read more: BlackRock shares its 11 top recommendations for a ‘new investment order’ in 2021 – and says the pandemic should prompt investors to completely rethink how they construct portfolios

Chipotle is currently targeting at least 6,000 domestic restaurant locations, more than double its current store count of just under 3,000 locations. That would likely equate to annual unit growth of 5% to 7%, according to Stifel, who added that 70% of new locations will utilize the higher sales and margin Chipotlane prototype, which includes drive-thru lanes for quick order/pickup.

“We project the new prototype to reach a meaningful share of its total footprint over the next few years, contributing to total margin expansion,” Stifel said.

Besides the addition of drive-thru lanes, new menu items could attract more customers and help drive sales higher, Stifel said. Chipotle is currently testing cilantro-lime cauliflower rice and smoked brisket in certain markets, along with a quesadilla offering only for those who order through the Chipotle smartphone app. 

Shares of Chipotle are up 61% year-to-date, and traded up as much as 6% to record highs in Wednesday trades.

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