Chipotle Mexican Grill (CMG) operates more than 2,000 restaurants; it offers quick service, but maintains traditional cooking methods and utilizes high-quality ingredients, notes John Staszak, an analyst with leading independent Wall Street research firm, Argus Research.
The company has a tightly focused menu, but store design and decor vary by location. The company has been expanding rapidly in recent years as interest in Southwestern food has spread throughout the U.S.
In July 2020, Chipotle opened its 100th Chipotlane — its drive-thru digital-order pickup lane. Going forward, Chipotlanes are expected to be included in more than 60% of new Chipotle restaurants. Assuming only slight delays related to the pandemic, it expects to open at least 200 restaurants in 2021.
We think that Chipotle has a healthy balance sheet ($1.7 billion in liquidity in 2Q21) along with robust mobile ordering and delivery platforms that will help it to recover as the economy reopens. While some consumers may be put off by Chipotle’s relatively high prices, we expect its strong brand to continue to attract customers.
We remain confident that Chipotle can achieve its long-term goals of mid-single-digit comps, high single-digit revenue growth, and mid-teens operating margins.
We are raising our 2021 EPS estimate to $25.50 from $24.50 and our 2022 estimate to $33.90 from $32.80. Our estimates assume continued growth in digital orders and carefully managed expenses.
We believe that the CMG share price inadequately reflects prospects for same-store sales improvement. The shares are trading at 55-times our revised 2022 EPS estimate, above the midpoint of their 10-year annual average range of 16-76. However, we see further upside based on the company’s recovery from the pandemic.
Our revised target price of $2,110 implies a multiple of 62-times our 2022 estimate, and a potential return of 13% from current levels. Our long-term rating is "buy".
