Chipotle Mexican Grill (CMG) is expected to accelerate same-restaurant sales starting in the second quarter of 2013, and traffic is not expected to crash despite menu price increases at this fast casual Mexican food restaurant, says Stephen Anderson, Analyst at Miller Tabak + Co., LLC.
“Since the beginning of the year, one of my favorite names has been Chipotle. I think it is a name that really got beaten up; the valuation was a concern 12 months ago. I certainly don’t think that’s the case today, and a strong argument can be made for the stock — I don’t think they’ll see $400 this year, but I think at least in the mid-$300s; our target is $360,” Anderson said.
Anderson expects further moderation in commodity costs, which would result in a competitive advantage for CMG over its peers. He adds that Chipotle has a second growth concept beyond its burrito franchise, a Southeast Asian bowl meal concept called ShopHouse that may provide another layer of growth.
“For Chipotle, 70% of their food costs are done on a non-contract basis. That means if commodities moderate, they’ll see the more moderate commodity costs or lower commodity costs earlier than some of their peers. Also, it has a second concept called ShopHouse. I think that will provide an additional layer of growth. I’m not sure it’s a 1,000 or 1,500-unit opportunity, but I do think there is a potential for about 300 to 400 units at least in the next 10 to 12 years,” Anderson said.
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