Market Overview

Morgan Stanley Turns Bullish On Chipotle, Says Earnings Recovery Is Real

Morgan Stanley Turns Bullish On Chipotle, Says Earnings Recovery Is Real

Fast casual restaurant chain Chipotle Mexican Grill, Inc. (NYSE: CMG) is undergoing a compelling earnings recovery story led by a new management team, according to Morgan Stanley. 

The Analyst

Morgan Stanley's John Glass upgraded Chipotle Mexican Grill from Equal-weight to Overweight with a price target lifted from $413 to $600.

The Thesis

The bullish case for Chipotle's stock can now be made for three reasons, Glass said in the upgrade note. (See the analyst's track record here.)

They are: 

  • Recently appointed CEO Brian Niccol said the company should see accelerating top-line growth from a rapid pace of new menu items, limited-time offers, improvements in throughput and digital opportunities including food delivery and loyalty programs, Glass said. 
  • Niccol is also focused on store-level improvements, including a second make line, which is a less labor-intensive production area, the analyst said. This alone could contribute more than 100 basis points of labor benefit over time and food cost benefits, he said. 
  • Investors face a shortage of growth stocks within the consumer discretionary space, which implies a higher multiple for a stock in its early stages of an earnings recovery can be tolerated, Glass said. Consensus estimates for 2019, which include a forecast for less than 4-percent same-store sales growth, are not "overly demanding," and less than one-third of Street analysts are currently recommending the stock.

Price Action

Chipotle shares were trading up 3.79 percent off the open Wednesday to $512.02. 

Related Links:

Chipotle's Stock Surge Is Thanks To Its New CEO

Chipotle Has A New Game Plan: Is Wall Street On Board?

Photo courtesy of Chipotle.

Latest Ratings for CMG

Oct 2020Deutsche BankMaintainsHold
Oct 2020Wells FargoMaintainsOverweight
Oct 2020JefferiesMaintainsHold

View More Analyst Ratings for CMG
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