BofA Credits Chipotle For Performing Better Than Expected

Chipotle Mexican Grill, Inc. CMG deserves credit for performing better than expected against a difficult backdrop, according to BofA Securities.

The Chipotle Analyst: Gregory Francfort maintains a Neutral rating on Chipotle's stock with a price target lifted from $800 to $1,200.

The Chipotle Thesis: The COVID-19 pandemic and social distancing requirement was expected to have impacted Chipotle's in-store serving line model yet the company appears to be "operating well" by adapting to other ordering methods, Francfort wrote in a note. Data compiled from Sensor Tower not only pointed to a significant pickup in app downloads, but it outperformed the March 2019 loyalty program launch.

Encouragingly, digital sales accounted for 70% of total sales and even when dining rooms opened up, stores retained 70% to 80% of those new digital sales, the analyst wrote.

Despite a better-than-expected performance, Chipotle's stock multiple remains high and a $1,200 price target based on a discounted cash flow model can only be justified if certain conditions are met. The company needs to grow by 5,000 to 6,000 stores (including a 5,000 store mark by 2030) and maintain a 20% restaurant margin.

These assumptions also imply Chipotle's stock trades at a mid 20 times P/E in 2030 and this is a "fair" valuation for a company operating model that will approach 3% to 4% unit growth and a low single-digit comp growth rate.

CMG Price Action: Shares of Chipotle hit a new all-time high of $1,145.63 on Tuesday morning.

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