Do not let
Recent stock sales put you off, say Gordon Haskett analysts who say the company’s menu innovation and customer loyalty are helping it stand out ahead of earnings.
Gordon Haskett analyst Jeff Farmer raised Chipotle (ticker: CMG) to Buy from Hold, setting it a price target of $1,750. The stock fell 0.5% on Wednesday to $1,399 but is down 15% since Dec. 1. The S&P 500 fell 0.5% and the
Dow Jones Industrial Average
The decline from December was the second-largest decline of a group of 28 restaurant stocks tracked by the analyst, behind
(DPZ). The group’s restaurant stocks have fallen 10% since December and are lagging
‘s 7% decline over this period, according to FactSet, as consumers remain cautious about variants of Covid-19.
But the market hasn’t given Chipotle the credit it deserves, Farmer said, citing five reasons why the stock shouldn’t be ignored.
Its customer loyalty program was the number one reason. It quickly became the second largest customer loyalty program behind
The app had 24 million members as of September, according to the company. Users can order online and pick up in-store, or become a member of the exclusive Chipotle program to earn extra points towards rewards, and collect all-new achievement badges in exchange for free food and clothing.
“Chipotle has only just begun to take advantage of this 1-to-1 marketing and customer relationship opportunity,” Farmer said. “In less than three years, Chipotle has grown its loyal membership to 25 million – who collectively represent 25% of the concept’s customer transactions.”
Chipotle’s market share is expected to grow through 2022 and 2023 thanks to its “frictionless” customer access, such as the ability to order and pay online and pick up in store, or have it delivered, the company said. analyst. Sales volumes have increased by 20% since 2019.
The company held down costs well compared to others in the restaurant business, where higher wages and recent inflation have eaten away at margins more easily, Farmer said. Chipotle’s menu pricing power has proven to be “significant and effective” in largely offsetting wage and commodity price inflation.
Chipotle reported menu prices rose 7.5% in the fourth quarter, and with additional price increases in December, the analyst said he expects prices to rise 7% this year. Farmer added that customer loyalty plays a role in willingness to pay for menu price increases.
Chipotle also has an incentive to open more stores given its expectations for net unit growth of 7% in 2021 and 8% in 2022, Farmer said. At these growth rates, Chipotle would have 2,964 units at the end of 2021 and 3,189 at the end of 2022.
The company is expected to release its fourth quarter and full year results on Feb. 8. Analysts polled by FactSet expect annual EPS of $9.40 per share.
The stock is down 23% over the past 12 months.
Write to Logan Moore at [email protected]