Fast-casual restaurant mainstay Chipotle Mexican Grill (NYSE:CMG) notched an extra 1.4% in premarket trading following new word from Raymond James. The gains have held on into this morning's session so far, and have added to the gains posted in premarket trading as well. The financial analyst bumped up its Chipotle stock rating, making it one of the most bullish analyses in the market today. The wider pool might consider this excessive, but given current ratings, not very far from where the consensus lies.
Raymond James Improves Chipotle's Rating on Likely Profitability
Raymond James, via analyst Brian Vaccaro, upgraded Chipotle from “outperform” to “strong buy”, putting a price target of $1,800 on the company. The biggest reason comes from Chipotle's recent price hikes in its menu items. Vaccaro noted that, so far, Chipotle has hiked prices 4%, and more such hikes are poised to arrive this fall.
Such moves will help drive profitability in the second half to well above consensus expectations, and also provides support for the full-year earnings per share (EPS) estimates posed by Raymond James itself. Additionally, Vaccaro pointed to Chipotle's “very strong value proposition,” noting that the chicken burrito is still under $8 in many markets. Vaccaro rounded out the predictions by suggesting that the raised prices, done mainly to cover higher wages for Chipotle employees, will “...result in limited customer resistance.”
Such resistance has already started to appear, though; social media is increasingly full of customers showing off what look like smaller burritos than normal. Customers are releasing photos that pose said burritos against a variety of objects for reference, including dollar bills and beer cans. The customers also note that the company's burrito is actually smaller now than the dollar bills used to pay for it. Some of this, however, may be due to issues of customization in orders; subsequent orders with additional options—including extra meat and a double-wrapped tortilla—look much larger than the standard burrito.
For its part, Chipotle noted that the company has been able to gather extensive information about ingredient costs and how customers order thanks to the massive increase in digital ordering brought about by Covid-19 restrictions. Employees, in turn, are getting “more consistent on portioning” and several “menu hacks” customers discovered—like ordering a burrito bowl and an extra tortilla resulting in a larger burrito overall—are being addressed.
What Are Financial Analysts Saying About Chipotle?
While Raymond James now represents the most bullish sentiment on Chipotle, the rest of the pool is not much farther behind. Financial analysts, based on our latest research, consider the Chipotle stock forecast a “buy”, and have done so for the last two years.
Those who wonder “why is Chipotle stock so high” need only look at the analyst perception. One year ago, the company had 20 “buy” ratings, 12 “hold” and one “sell” rating to its credit. Six months ago, there was a slight shift as the company had 21 “buy” ratings, 11 “hold”, and no “sell” ratings. Today, we're at one “strong-buy”, 20 “buy”, eight “hold” and no “sell” ratings. It's clear that sentiment is shifting Chipotle's way, but “buy” sentiment has run strong for this stock for quite some time now.
The Chipotle price target, meanwhile, occupies a fairly broad range. The current consensus target is $1,670, with a high of $2,100 and a low of $1,170. Given that Chipotle stock currently trades at $1,399.07 as of this writing, there is substantial upside potential seen with this stock.
Recent movement has been comparatively slim. The Raymond James bump that hit today was the first move to happen in close to the last three weeks. The entirety of May featured just four moves, with Stephens upgrading both its rating and its price target, going from “equal weight” to “overweight” and from $1,600 per share to $1,700. UBS Group took its rating from “neutral” to “buy” and its price target from $1,575 to $1,700. Robert W. Baird reiterated its “buy” rating and Piper Sandler upgraded its price target on the company from $2,000 to that previously-mentioned Street high of $2,100.
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