Baird Makes Chipotle A 'Fresh Pick' After Chatting With Management

Baird analysts turned "incrementally positive" on Chipotle Mexican Grill, Inc. CMG after hosting a chat with the senior management team, including CEO Brian Niccol.

The Analyst

Baird's David Tarantino maintains an Outperform rating on Chipotle with an $800 price target, but gave the stock a "Fresh Pick" designation.

The Thesis

Niccol and his team said during the chat it believes the 9.9-percent comparable store gain in the first quarter is a factor of new business layers and not the function of a temporary lift, Tarantino wrote in a note. This implies that the momentum seen in the first quarter could continue into the second quarter and result in a same-store sales beat versus the Street's current estimate of 8.1 percent.

The company could see an acceleration in trends in the back half of 2019, which could also result in the Street revising 2019 and 2020 earnings estimates by a "healthy" amount.

Tarantino said Chipotle's management "spoke confidently" about its potential to return to historical peak levels of $2.5 million in average unit volumes versus $2 million currently. Coupled with a return to restaurant level margins in the mid-20s (18.7 percent in 2018) over the next five years, the company could earn $40 per share by 2024.