Chipotle upgraded to outperform at Wedbush; price target raised to $980

Chipotle Mexican Grill

Chipotle Mexican Grill Inc. (NYSE: CMG) shares rallied in premarket trading on Monday, after Wedbush raised its rating for the stock to “outperform” from “neutral” and lifted its price target from $780 to $980.

In a note to clients, Wedbush analyst Nick Setyan stated that he believes the fast casual restaurant chain has the potential to be a leader in the “digital real estate” space. He also thinks that digital orders will account for more than 30% of Chipotle’s total sales by the end of 2021 as the industry continues to transition to a larger mix of online transactions.

“Within the emerging battle for digital real estate, CMG is quickly establishing a leading position that could enable a multi-year streak of mid- to high single digit SSS growth,” Setyan said wrote. “As the industry transitions toward a larger mix of digital transactions, we believe Chipotle is in a leading position to establish a digital moat.”

“We not only continue to see near-term momentum as management executes toward this transition, we believe Chipotle is poised to sustain outsize same-store sales and earnings per share growth in the medium to long-term in an industry where a dearth of growth is likely to command an increasing premium,” Setyan added.

In July, the company reported net income of $91.0 million, or $3.22 per share for its fiscal second quarter. The Newport Beach, California-based company had net income of $46.9 million, or $1.68 per share in the period a year ago.

Adjusted for one-time items such as corporate restructuring costs and asset impairment charges, earnings came $3.99 per share, beating the $3.76 per share figure that Wall Street analysts has been expecting.

Companywide revenue came in at $1.43 billion, up 13% on a year-over-year basis. Meanwhile, comparable restaurant sales – a closely watched industry metric – were up 10%.

Chipotle, which is set to announce fiscal third-quarter results later next month, also lifted its full-year outlook for comparable restaurant sales growth.

Shares of the burrito maker were trading 2.1% higher to $849.90 this morning. The stock has gained more than 95% since the beginning of the year.

Chipotle Mexican Grill Profile

With $4.9 billion in systemwide sales during 2018, Chipotle Mexican Grill is the largest player in the $14 billion domestic fast-casual Mexican restaurant category. Its menu includes burritos, bowls, tacos, and salads, which are made from higher-quality ingredients than those typically found at quick-service restaurants.

As of June, the firm operated more than 2,500 company-owned restaurants in the United States, Canada, the United Kingdom, France, and Germany. – Warrior Trading News