After close to a 20% drop in their share price over the past few sessions, burrito maker Chipotle (NYSE:CMG) was in need of some good news this week. Shares had notched an all-time high at the start of last month before getting caught up in the heavy rotation away from growth stocks and into value. Even though you’d be hard-pressed to call them a tech stock, a price-to-earnings (P/E) ratio of 114 does make them sound like a recently IPO’d and San Francisco headquartered software name.
But this 28-year-old casual dining company out of Denver, Colorado has a lot more going for it than a hyped-up Wall Street looking for the next big thing. They’ve made a habit of beating analyst expectations consistently quarter on quarter and have a longer than expected list of sell-side bulls backing their ability to keep it going. We’re barely halfway through this week and already Wall Street has been busy backing the buy opportunity.
Raised Price Target
Just before yesterday’s bell Goldman Sachs (NYSE:GS) were out with a reiteration of their Buy rating and fresh price target of $1,750, suggesting upside of some 30% from where the stock closed on Monday night. Shares duly complied in yesterday’s session as they surged more 6%, helped no doubt by the strong bid seen elsewhere in the market.
In a note to investors, they highlighted the long term potential and buying opportunity currently at hand: "we believe CMG is one of the most compelling opportunities in the Restaurant industry, and see the recent sell-off as a buying opportunity. Chipotle is emerging from the COVID-19 pandemic in a stronger position regarding its rapid digital acceleration, a focus on new asset designs (digital/Chipotlanes), a healthy pipeline of menu innovation (quesadilla coming soon), and a strong balance sheet to support unit development and growth initiatives."
Quesadilla Driven Growth
This digital transformation hasn’t gone unnoticed elsewhere, with Cowen coming out with bullish comments yesterday as well on the role it’s set to play in the company’s future growth goals. With quesadillas among the more requested menu items, analyst Andrew Charles sees their digitalization (order, delivery, collection) delivering “a 3%-4% sales lift as our conversations with fast-casual Mexican peers suggest quesadillas mix 8-11% of sales. We maintain our 1Q21 & 2021E comps of 18% & 17.8% vs 16.8% & 14.6% consensus, respectively, with quesadillas giving us further confidence to the upside".
Last month, Northcoast Research pointed at similar catalysts when they upgraded Chipotle shares to a Buy on the back of expanding sales and margins and gave them an $1,827 price target. Even with yesterday’s jump, that’s a fat suggested upside of 30% for investors considering getting involved to chew on.
February’s earnings report showed Chipotle growing at a steady rate of 12% year on year as it smashed analyst expectations. In the weeks since shares have fallen considerably but the voices of those backing the long term opportunity have only gotten louder and investors would do well to take notice.
There are plenty of tech stocks out there who’d like to be attracting as much positive sentiment as Chipotle is right now and there’s a strong case for this dip to continue to be bought. Don’t be surprised to hear this from more voices, both new and old, on Wall Street in the coming sessions.
