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

FILE PHOTO: The logo of Chipotle Mexican Grill is seen at the Chipotle Next Kitchen in Manhattan, New York, U.S., June 28, 2018.  REUTERS/Shannon Stapleton
The logo of Chipotle Mexican Grill.

  • 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.
  • The firm 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 and 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. That 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 targeting at least 6,000 domestic restaurants, more than double its store count of just under 3,000. That would likely equate to annual unit growth of 5 to 7%, according to Stifel, which added that 70% of new locations would use the higher sales margin Chipotlane prototype, which includes drive-thru lanes for quick order and 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 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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