Chipotle Mexican Grill(NYSE: CMG) has always been an outlier of a restaurant stock, a factor that was behind a recent price target increase from an analyst. According to him, the fast-casual chain operator, which is heading for the first stock split in its history and trades over $3,000 now, is deserving of a price tag approaching $4,000. Here's a brief look at this recent evaluation.
A stock-split superstar
That boost clocked in at over 12%, as Evercore ISI's David Palmer upped his Chipotle target from $3,200 per share to $3,600. At the risk of stating the obvious, this is a pre-stock split price; that piece of financial engineering is subject to shareholder approval in a vote to be taken at the company's June annual meeting.
Like many recent changes in analyst evaluations, Palmer's modification came just after Chipotle unveiled quarterly results.
As it usually does, the company posted excellent numbers, with first-quarter revenue rising 14% year-over-year to $2.7 billion, comparable-restaurant sales advancing by 7%, and per-share profitability vaulting an impressive 27% higher to $13.37. Chipotle beat the consensus analyst estimates on both the top and bottom lines.
After parsing that earnings report, Palmer raised his estimates for "comps" and earnings. Referring to the former, he said his increase was because "Chipotle's superior 'food quality for the money' and improving throughput is helping differentiate itself from an industry with declining traffic."
Tasty tech temptations
The analyst also believes Chipotle can leverage technology to beef up its bottom line, for example using artificial intelligence (AI) to enhance its marketing efforts. Advanced kitchen equipment, meanwhile, should help it slice costs.
Chipotle's management, in my view, is one of the best teams in the business. The company is the gold standard in the fast-casual segment, with consistently high profit margins almost unknown in the challenging restaurant industry. It's proven to be adept at leveraging available tech to bolster its results, and with more opportunities to do so those numbers are sure to keep improving. This stock continues to be a winner.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
