Chipotle Stock (NASDAQ:CMG) Near Highs, Could Keep Surging on Automation Opportunity
Stock Analysis & Ideas

Chipotle Stock (NASDAQ:CMG) Near Highs, Could Keep Surging on Automation Opportunity

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Chipotle Mexican Grill stock may be in a spot to break out to even higher highs as analysts look to upgrade it. With plenty of growth levers to pull in the realm of automation, Chipotle may be one of the better ideas in the fast-food space today.

Shares of Chipotle Mexican Grill (NASDAQ:CMG) are hovering near highs on the back of an incredibly strong first-quarter earnings beat in April. Despite the hot run and the risk of a looming recession, many analysts are sticking with the stock, and it’s not hard to see why. The company has built a fairly respectable moat around its corner of the quick-service restaurant scene.

When it comes to relatively healthy, high-quality offerings, Chipotle stands out. Although its pricier offering could put it at a competitive disadvantage relative to more value-conscious offerings — think McDonald’s (NYSE:MCD) — in the face of a recession, I do view the long-term growth story as one of the best in the industry. For that reason, I’m staying bullish on the stock.

Not only has Chipotle found a spot with consumers, but it also has an opportunity to innovate its way to greater earnings growth. Undoubtedly, Chipotle’s impressive balance sheet leaves it with enough flexibility to invest in areas that can help sustain high single-digit top-line growth. The company has done well with mobile ordering and menu innovation in recent years. However, the greatest opportunity that’s not currently on the radar of investors may lie in robotics and food-prep automation.

Chipotle Explores Potential of Autocado and Robotic Food Prep

Indeed, 2023 is the year of AI (artificial intelligence), with OpenAI’s ChatGPT causing a euphoric investor rush to stocks that provide exposure to the impressive emerging technology. A Mexican quick-service restaurant chain is probably at or around the bottom of the list of companies you’d expect could gain from the rise of AI. Still, it’s hard to ignore the company’s exploration of automated food prep.

With the appetite for fresh and convenient food heating up again, the lineups at the local Chipotle can become quite extensive. New food-prep robots could help things go a bit faster. Just last year, the company pulled the curtain on a robot named “Chippy” that can make tortilla chips. More recently, Chipotle unveiled “Autocado,” a robot that peels and pits avocados in the guacamole-creation process.

As new robotic technologies roll out, Chipotle stands to get a nice jolt to its margins. Not only can helpful food-prep robots cut down on labor needed, but they may also be able to reduce waste and remove friction from the ordering process. Further, the number of knife-related injuries from the guacamole-prep process will essentially be reduced drastically.

Reportedly, Autocado stands to save up to 50% in guacamole-preparation time. Of course, this frees up workers to do something else. However, I do view full restaurant autonomy as the holy grail over the longer term.

Over the coming years, automation could be key to taking fast-food firms to the next level. In that regard, Chipotle may evolve to become one of the leaders in the space. While I wouldn’t expect a fully-automated Chipotle to arrive anytime soon, I do expect robotics to play a growing role in food prep over time.

Chipotle Stock Sees Price Target Upgrades Come Flowing In

Chipotle stock has been on the receiving end of analyst price target hikes in recent weeks. For instance, Wells Fargo (NYSE:WFC) recently hiked its price target from $2,050 to $2,400. Undoubtedly, it’s hard not to love Chipotle’s growth story as demand creeps higher while the company continues innovating on the robotics front.

Should a recession fail to materialize, look for Chipotle stock to really pull ahead of its peers as consumers become more willing to pay up for a relatively healthy, fresh meal over the likes of a low-cost burger.

As it stands today, the implied upside on CMG stock looks quite muted at 1.5%. Given the pace of price target hikes, though, I’d not be surprised if the average CMG price target creeps much higher over the coming weeks as more analysts revisit their models.

Is CMG Stock a Buy, According to Analysts?

Turning to Wall Street, CMG stock comes in as a Moderate Buy. Out of 26 analyst ratings, there are 19 Buys and seven Holds.

The average Chipotle Mexican Grill price target is $2,202.08, implying upside potential of 4.2%. Analyst price targets range from a low of $1,850.00 per share to a high of $2,570.00 per share.

The Bottom Line on CMG Stock

After an impressive 52.8% year-to-date surge, CMG stock is getting expensive at 57.9 times trailing price-to-earnings, well above the 33.3 times of the restaurant industry. The premium seems more than warranted, though, given the long-term automation opportunity and its footing ahead of a potential post-recession expansion.



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