After a big move over the past year, is a $3,250 price target realistic for Chipotle?
Chipotle Mexican Grill (CMG -0.41%) made a name for itself for its fresh approach to Mexican fare. The restaurant chain focuses on local sourcing and using organic produce when it can. It's hard to argue with the results as this strategy has generated savory returns of nearly 400% over the past decade with a 68% gain over the past year alone.
And one Wall Street analyst believes there's even more to come.
An appetizing investment
Peter Saleh at BTIG raised his price target on Chipotle from $2,750 to $3,250 per share while maintaining a buy rating on the stock. As of Monday's close, this new price target represents a potential gain of 13%. Saleh was impressed with management's improved throughput while citing seasonal demand and price increases in California as contributing to higher comparable sales.
Wall Street has been scrambling to keep up since Chipotle announced plans for a 50-for-1 stock split, one of the biggest such splits in New York Stock Exchange history. The move comes after the stock's 13,000% rise since its early 2006 IPO.
Sales boosting innovation
It's hard to fault Saleh's logic. The company built out Chipotlane drive-thru's to handle digital orders, which has boosted sales while increasing profit margins. This not only improved throughput but also increased purchase frequency among Chipotle's 36 million rewards members.
There are other potential drivers. Chipotle recently announced the limited-time return of chicken al pastor, a fan-favorite menu item. Along with strong seasonal demand in the spring, these initiatives will help Chipotle maintain its winning streak. Last year, revenue grew 14.3%, while earnings per share jumped 38.4%. The company's comparable sales shined, increasing 7.9%.
Chipotle currently sells for 65 times trailing-12-month earnings, a significant premium to 24 times earnings for the S&P 500. However, given the company's track record, that's not an unreasonable price to pay for Chipotle's increasingly profitable, market-beating growth.
Danny Vena has positions in Chipotle Mexican Grill. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
