SunTrust Initiates Chipotle With Buy Rating, $850 Target

• Chipotle Mexican Grill, Inc. CMG shares have gained 5 percent year-to-date, and have been range-bound between $700 and $750 since the last week of August.
• SunTrust’s Jake Bartlett initiated coverage of the company with a Buy rating and a price target of $850.
• Mentioning that the company has more sales levers than it did in the past, Bartlett added that its share price performance may be strong in 2016.

Analyst Jake Bartlett said that Chipotle has “more sales levers to pull than in past years, including marketing, catering, online, throughput initiatives and the return of Carnitas.” He expects commodity costs to be flattish, following high inflation of around 7.5 percent in 2014 and around 4.5 percent in 1Q15.

Bartlett further expects Chipotle’s new secondary brands, namely ShopHouse and Pizzeria Locale, to enter additional markets, which would bring back investor focus on the company’s long-term opportunity as a portfolio company.

Chipotle’s same-store sales is expected to accelerate from 2.5 percent in 3Q15 to 5.5 percent in 2016, driving the company’s sales growth. Bartlett also estimates a 100-150bps boost from the return of Carnitas. In view of historical trends, the company would be poised for “another 3 year SSS cycle with SSS accelerating to +double-digits by 2017,” the analyst added.

In the report SunTrust noted, “CMG has faced rising COGS since 2011, but we expect that to change in 2016. After rising ~7.5% in 2014 and 4.5% in 1Q15, commodities were favorable in 2Q which we expect will continue for at least the next four quarters and most major commodities are looking flat to favorable in 2016.”

Bartlett added, “We think CMG is set up for another year of strong stock price performance in 2016.”