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Chipotle Stock: A Tale of Two Price-Target Hikes

Chipotle Mexican Grill (NYSE: CMG) is getting a double dose of Wall Street love on Tuesday. Analysts at JPMorgan and Loop Capital are boosting their price targets on the "food with integrity" fast-casual chain. Increases in price goals are always welcome, but John Ivankoe at JPMorgan and Lynne Collier at Loop Capital are far apart here.

The bullish Collier is lifting her price target from $1,400 to $1,600. The neutral Ivankoe is going from $1,040 to $1,115 in his update. We'll get into the reasons for each revision shortly, but for now, it's important to remember that the stock was trading at $1,335.59 on Monday.

Collie's new goal implies nearly 20% of near-term upside in Chipotle stock. The shares would have to decline 17% from current levels to get to Ivankoe's new goal post. It's the best of times for the burrito roller, it's the worst of times for the burrito roller. Let's pull up a seat, peel off the tinfoil, and go in for a bite.

Image source: Chipotle Mexican Grill.

Growth on the menu

Let's start with JPMorgan's Ivankoe, who has a neutral rating on the stock but a price target that suggests things may get worse before they get better. Ivankoe bumped price goals higher for several restaurant stocks on Tuesday, encouraged by improving dining trends.

His data shows that quick-service chains, in general, are growing again. The industry went from 3% growth in July to 3.7% growth in August to 5.8% in September. His concern -- explaining why his revised Chipotle price target is lower than where the stock is presently perched -- is that many of the stocks have already bounced back sharply in recent months. The market is already pricing in the recovery. Month-to-month improvement is now expected, and the recent gains could be squandered if the positive trend shifts to reverse on the drive-thru lane.

Loop Capital's Collier has a far rosier outlook here. Her store checks continue to come back strong, and she sees sales momentum continuing as Chipotle's growth initiatives play out. Chipotle has seen its digital sales explode, and rollout drive-thru "Chipotlanes" in new stores and existing locations that have the real estate specs to pull it off are helping to give customers and third-party delivery app drivers a new way to rock the guac more conveniently.

Menu innovation -- like the recent return of carne asada as a seasonal protein addition -- is also keeping things fresh for a menu that was rarely tweaked under the old regime. After a false start a couple of years ago, the Chipotle Rewards loyalty program is finally gaining the traction and scale it needs to be a material driver of repeat business.

Chipotle reports financial results after Wednesday's market close, and there have now been three analysts boosting their price targets this week to get in ahead of the actual numbers. Chipotle proved mortal last time out. Comps declined 5% in the second quarter after nine consecutive periods of comparable-store sales growth, but we already saw the trend turn positive in June. The last three months should continue to ride that bullish momentum, with the economy across the country gradually getting back to business.

Chipotle never stopped being a growth stock during the initial pandemic setback, but we're now seeing all of the digital ordering, Chipotlanes, and Chipotle Rewards seeds it's been planting start to sprout. Ivankoe is right that the market is already expecting greatness out of Chipotle this week, but the long-term outlook for the chain has never been stronger than it is right now.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.


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