This Analyst Is Optimistic About Chipotle's Resilience Amid Inflation, Cites Strong Premium Digital Capabilities And Unit Returns

KeyBanc Capital Markets analyst Eric Gonzalez reiterated an Overweight rating on the shares of Chipotle Mexican Grill, Inc. CMG, raising the price target to $2,300 from $2,050.

The analyst sees sustained traffic momentum and pricing power as inflation on avocados/chicken remains tame.

Chipotle's clean balance sheet and ample cash access are reasons why it can continue to expand its industry-leading average unit volumes.

Also Read: Chipotle's Q2 Growth Is Influenced By Menu Innovation And Stable Labor Costs, Analyst Predicts Accelerated Market Share Gains

The analyst predicts slightly higher same-store sale (SSS) growth, backed by proprietary/third-party data, which suggests store hours are expanding. 

Gonzalez raised the 2Q23 SSS growth estimate from 7% to 7.5% and the full-year SSS growth estimate from 7% to 7.4%.

CMG's 410 chains across 3,250 locations have extended their hours since late April, with 346 closing at 11 PM vs. 10 PM prior.

The analyst believes that Chipotle's digital capabilities and best-in-class unit returns offer a unique level of resilience worth a premium relative to its peers.

Labor costs are expected to be relatively unchanged vs. 1Q23 (e.g., mid-24% level) as seasonally higher sales offset inflation, notes the analyst.

Based on the above, the analyst raised FY23 EPS estimate to $44.78 from $44.43. For FY25, the analyst raised the EPS estimate to $53.72 from $52.98. 

Price Action: CMG shares are trading lower by 0.09% to $2,048.63 on the last check Friday.