Morgan Stanley Hungry For Chipotle Stock

Expectations are high for new Chipotle Mexican Grill, Inc. (NYSE: CMG) CEO Brian Niccol, and the Chipotle management team got a vote of confidence from Wall Street on Wednesday. Morgan Stanley analyst John Glass has upgraded CMG stock from “equal-weight” to “overweight,” but not all analysts are as optimistic about Chipotle’s outlook.

In addition to the upgrade, Glass raised his price target for CMG stock from $413 to $600, suggesting roughly 15 percent upside for the stock. Glass says Chipotle simply has more earnings power than the market seems to realize and estimates Chipotle has the potential to hit $20 in annual earnings per share in the long-term.

Glass says Niccol, who joined the company earlier this year after a successful run as CEO of Taco Bell, has plenty of marketing levers to pull to drive near-term growth. He says ramping up the pace of new product introductions and making better use of limited time promotions are two examples of ideas to boost sales, and Niccol has plenty of experience leveraging these techniques successfully at Taco Bell.

In addition, Glass says the intensely competitive restaurant market should become more benign, creating a window of opportunity for Chipotle.

“CMG is still early into a sales turnaround and has an attractive management change narrative and earnings recovery story,” Glass says.

He says market dynamics could also help drive CMG stock higher. Consensus Wall Street 2019 same-store sales growth estimates are calling for less than 4 percent growth, which Glass says is entirely reasonable. At the same time, less than a third of analysts who cover the stock currently have “buy” ratings on it, leaving plenty of room for upgrades.

“The scarcity of growth stocks across consumer discretionary could also increase investors’ willingness to pay a high multiple for an early innings recovery story, while the narrative of new management with sales levers to pull is one that has typically worked in restaurants,” Glass says.

Still, Chipotle has plenty of skeptics remaining. Bank of America analyst Gregory Francfort says CMG stock is pricing in unrealistic optimism at more than $500 per share.

“We think CMG’s incentive comp matrix has investors excited about the possibility of $14 to $17 of 2020 EPS, but the probability of achieving mid-teens EPS is low, in our opinion,” Francfort says.

Bank of America has…

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