Wedbush upgrades Chipotle, says digital strategy will drive sales

An employee prepares a burrito bowl at a Chipotle Mexican Grill Inc. restaurant in Louisville, Kentucky, Feb. 2, 2019.

Luke Sharrett | Bloomberg | Getty Images

Chipotle is well positioned to grow, as the restaurant industry adapts to using more apps and digital transactions, Wedbush said Monday.

The firm upgraded the stock to outperform from neutral and hiked its 12-month price target to $980 from $780.

“Within the emerging battle for digital real estate, CMG is quickly establishing a leading position that could enable a multi-year streak of mid- to high single digit SSS growth,” Wedbush analyst Nick Setyan said in a note to clients.

Chipotle’s stock has surged nearly 40% since the restaurant launched a loyalty program in March as part of a strategy to build digital engagement. It hit an all-time high in July following the Mexican-style chain’s second-quarter earnings results that showed digital sales nearly doubled. Digital sales grew 99.1% and made up 18.2% of sales for the quarter. This marked the program’s first full quarter since it began, and the company’s CEO said it added about 2 million members from last quarter with more room to grow.

Setyan said Chipotle is on a path toward increasing sales 30% by the end of 2021, with help from digital partnerships.

“With respect to Chipotle’s own app … we expect loyalty to act as the primary lever behind both adoption and usage, positioning CMG at the top of restaurant apps likely to find space on customers’ handheld devices,” said Setyan.

Additionally, Setyan expects new menu items like quesadillas, carne asada and white queso to drive same-store sales growth.

The firm raised its 2019 earnings per share estimate to $13.78 from $13.34. Wedbush also hiked its 2020 and 2021 earnings per share estimates.

Shares of Chipotle rose 0.44% on Monday, reaching a 52-week high at one point.

— With reporting from CNCB’s Michael Bloom

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