Stock Analysis & Ideas

Chipotle: Still a Category Value Leader

We might be going through a period of record commodity and labor inflation, yet it looks like Chipotle Mexican Grill (CMG) is a brand boasting ongoing pricing power that it can use to expand margins even during these testing times.

That is the conclusion reached by BTIG analyst Peter Saleh following a recent pricing survey in over 25 cities, which confirms that Chipotle remains the “value leader in the fast casual sector, underpricing their peers by a wide margin, despite raising prices at a pace 4x-5x higher than historical.”

Although Saleh anticipates Chipotle will keep on raising menu prices, he expects the company to maintain its “value proposition,” by doing so at a more moderate pace than other names in the sector.

By the end of the year, Saleh reckons Chipotle’s menu prices will be roughly 20% above end of 2020’s prices. Yet the pricing survey indicates Chipotle is 10.7% and 9.2% cheaper than its biggest national fast casual peers Qdoba and Moe’s Southwest Grill, respectively.

“We believe the results of our pricing survey suggest that Chipotle still has pricing power that it can lean on to support margins in this inflationary environment,” the 5-star analyst opined.

In fact, heading into next week’s Q2 print (Tuesday, July 26), Saleh anticipates 2Q22 restaurant and operating margins will be the “highest in 26 quarters or nearly 7 years.”

There is another indicator flashing a bullish signal; looking at Chipotle’s website traffic, Unique Visitors (UVs) grew sequentially by 64.23%, from 30 million to 61.3 million, yet the increase is even more impressive on a year-over-year basis; UVs are up by 104% from the same period last year.

All told, Saleh sticks with a Buy rating and $1,975 price target, which implies one-year share appreciation of 52%. (To watch Saleh’s track record, click here)

Overall, there are 24 analyst reviews on record for CMG, including 18 Buys and 6 Holds, giving the stock a Strong Buy rating from the analyst consensus. The shares are currently priced at $1,342.53 and have an average price target of $1,800 and change, making the upside potential for the year ahead 34%. (See Chipotle stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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