Chipotle Mexican Grill (CMG) stock has been lackluster this year and one investment firm says now is the time for investors to jump in to the Mexican chain.
"Chipotle remains among our key ideas for 2022," analysts Eric Gonzalez and Benjamin Blake at Keybanc Capital Markets, said in a note to investors.
"And we view the stock's underperformance since the start of the year as a compelling entry point for what is a best-in-class fast-casual restaurant chain."
The analysts raised their price target to $1,900 from $1,850 and affirmed an overweight rating on the stock. The price target equals 57 times the analysts' earnings estimate for 2022 and 44 times the estimate for 2023.
The "premium valuation is warranted," they said.
Chipotle stock is off 9% this year through Wednesday's close. The new price target indicates nearly 20% potential upside from that close at $1,590.
Looking at the first quarter, the analysts said that same-store sales trends improved In January as the covid omicron surge subsided. And in March, they said, sales trends moderated only slightly against a tough comparison from a year earlier, which was helped as consumers received stimulus checks.
Chipotle increased prices at the beginning of 2022 across almost all its 3,000 stores. The increases were 4% for chicken and veggies, 5% for carnitas (braised pork) and 6% for steak.
The brand's "favorable demographics, quality positioning, and high relative food value afford it significant pricing power," they said.
Chipotle's digital capabilities "are among the best in the industry," the analysts said. These include mobile ordering, integration with third-party delivery providers, and its rewards loyalty program, which had 26.5 million members as of the end of the fourth quarter.
There Are Some Risks Though
As hard as Chipotle was whacked by the covid-19 outbreak, its business model was resilient as the company "[leveraged] its digital assets and marketing expertise," Gonzalez and Blake said.
Chipotle's digital abilities are also drawing in new customers. "Digital sales are proving to be sticky and new customers are increasingly entering the brand through these channels," they said.
The risks? One is concern about food safety. This harks back to the 2015 outbreak of E. coli bacteria at a number of Chipotle restaurants. In early 2016 the company closed all its outlets for staff training in food safety and took a number of additional safety measures. Through marketing, the company also worked to restore consumers' trust in the brand.
Another risk, the analysts say, is input costs -- inflation boosting the cost of food and related materials. Others are sharp competition in the industry, the economic environment, the company's ability to execute its strategy, and, of course, the prospect of another global pandemic.
