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BMO: 3 Possible Scenarios For Chipotle Over The Next 5 Years

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BMO: 3 Possible Scenarios For Chipotle Over The Next 5 Years
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Chipotle Mexican Grill, Inc. (NYSE: CMG) continues to struggle with its reputation after a series of food safety scandals. But what will the company look like in five years?

The Analyst

BMO Capital Markets' Andrew Strelzik maintains a Market Perform rating on Chipotle's stock with an unchanged $275 price target.

The Thesis

Over the coming years, Chipotle could introduce new initiatives like breakfast, a full remodeling of its stores and changes in marketing strategy including higher spend, digital initiatives and a re-acceleration in unit growth, Strelzik said in a research report. This could lead to one of three outcomes in five years: a best case scenario, a base case optimistic outcome, and a low-end scenario, the analyst said. 

A best case scenario includes the following, Strelzik said:

  • Comp growth of 6 to 6.5 percent.
  • A 19.5-percent restaurant level margin.
  • EPS of around $25 in 2022.
  • Comp lifts at the high end of the peer group.
  • Minimal dilution from breakfast.
  • No increase in marketing spend.
  • A stock price north of $700 per share.

BMO's base case optimistic outcome includes the following:

  • Average annual comp growth of 5 percent.
  • Restaurant margins at 17 percent. 
  • EPS of $18 to $19 in 2022.
  • A stock price of $425 to $500.

The analyst's low-end scenario includes the following:

  • Average comp growth of 3.5 to 4 percent. 
  • Restaurant margins at 14.5 percent.
  • EPS of $11 to $12 in 2022.
  • Margin dilution from breakfast.
  • Increased spending on marketing.
  • A stock price of $200 to $250.

Price Action

Shares of Chipotle were trading higher by 1.2 percent early Wednesday morning.

Related Links:

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The 'Time Has Expired' For A Chipotle Turnaround, Mizuho Says In Downgrade

A Chipotle Mexican Grill on Melrose Avenue in Los Angeles. Courtesy photo. 

Latest Ratings for CMG

DateFirmActionFromTo
Aug 2018Maxim GroupMaintainsHoldHold
Aug 2018WedbushDowngradesNeutralUnderperform
Aug 2018CitigroupMaintainsBuyBuy

View More Analyst Ratings for CMG
View the Latest Analyst Ratings

Posted-In: Andrew Strelzik BMO Capital MarketsAnalyst Color Price Target Reiteration Restaurants Analyst Ratings General Best of Benzinga

 

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