Analysts raise their price targets on Chipotle as they see a turnaround 'for real'

  • Chipotle reported blockbuster earnings Wednesday, causing some analysts to up their view of the company.
  • Shares surged in Thursday trading as the market digested the beats on the top and bottom lines.
Brian Niccol, CEO of Chipotle Mexican Grill. 
Adam Jeffery | CNBC
Brian Niccol, CEO of Chipotle Mexican Grill. 

Analysts say Chipotle continues to make moves in the right direction. The company Wednesday reported a blockbuster quarter beating on earnings, revenue and comps. Many analysts raised their price targets even though they were surprised by the surge in shares after the report.

The stock was up more than 13 percent in early trading Thursday, most recently around $596.50.

The "turnaround (is) looking for real," Morgan Stanley analyst John Glass said. "Results showed a meaningful positive trend change in sales, especially later in the quarter, with carry-through to 2019 and more initiatives still either in early stages or to come," he noted. Glass, who raised his price target, noted, "It's an expensive stock, not for the faint of heart, and a lot still has to go right to achieve this bull case."

Analysts at KeyBanc also think Chipotle's turnaround is "for real." He kept his overweight rating and upped his price target saying, "We believe that sweeping changes to personnel and internal processes are producing positive results and that consensus EPS estimates do not fully contemplate what is possible under this new management."

UBS's Dennis Geiger also wondered, "From here it's not clear shares have much upside near to medium term, & challenges to sales momentum or flow-through present downside risk."

Overall, Goldman Sachs, which has a neutral rating on stock, was slightly less impressed saying, "We were somewhat surprised by the strength of CMG shares after the close despite a strong earnings beat in the quarter when near-term commentary did little to confirm fairly bullish 1Q19 investor expectations."

Here's what else they think:

Morgan Stanley- Overweight rating, price target to $617 from $600

"Turnaround Looking 'For Real.....4Q results showed a meaningful positive trend change in sales, especially later in the quarter, with carry-through to 2019 and more initiatives still either in early stages or to come... Restaurant margins responded, both handily beating expectations and reminding investors of CMG's operating leverage... While there's always a new debate, especially as the stock price and expectations rise, in our view this quarter validates the thesis that the economic model has the potential to substantially recapture former average unit volumes and margins... Numbers go up, but modestly (details below), and we assume cost line item guidance is likely based on the mid-point of the mid-single digit comp range, with CMG running above that level currently... But the bull case is still in play, in our view, with the 4Q results supporting, not detracting, from that case... It's an expensive stock, not for the faint of heart, and a lot still has to go right to achieve this bull case... But it is still early days, and even detractors would have to admit that CMG has achieved more and faster than they would have expected..."

Bank of America- Underperform rating, price target to $400 from $340

"The company guided margin lines to what looks like a slight downward revision to street estimates and to a number we think looks pretty achievable... We think CMG is a strong company executing on a solid sales growth plan but the question is largely what we are willing to pay for earnings, and we are not comfortable with the assumptions that would be necessary to justify a more than 45x multiple for the stock (at the current price)..."

Goldman Sachs- Neutral rating

"We were somewhat surprised by the strength of CMG shares after the close despite a strong earnings beat in the quarter when near-term commentary did little to confirm fairly bullish 1Q19 investor expectations, 2019 cost commentary actually brought our already below consensus EPS estimate down despite a higher top-line, and still very qualitative versus quantitative commentary on various initiatives did little to firm an out-year valuation based bull case.."

KeyBanc- Overweight rating, price target to $625 from $525

"Chipotle currently trades at 43x and 34x our 2019 and 2020 EPS estimates, respectively, placing it among the most expensive stocks in the universe of publicly traded restaurant companies... However, we believe that sweeping changes to personnel and internal processes are producing positive results and that consensus EPS estimates do not fully contemplate what is possible under this new management... While we remain conservative with our base case, 4Q results and commentary did little to deter us from dreaming of a $20 bull-case EPS in 2020 as margin guidance seemed to leave room for upside from supply chain efficiencies, labor scheduling, and higher sales leverage..."

UBS - Sell rating, price target to $400 from $370

"4Q results & [1QTD trends] are likely indications that CEO Niccol's strategic plans are resonating... But w/ shares up ~30% this yr & trading at ~25x EBITDA (after mkt), expectations are elevated & valuation embeds more optimistic scenarios w/ consistency needed out the curve... From here it's not clear shares have much upside near to medium term, & challenges to sales momentum or flow -through present downside risk..."

J.P. Morgan- Neutral rating, price target to $550 from $500

"Headline comps of 6.1%, vs our 5.0%, were driven by 3.3% price, 2.0% traffic, and 0.8% mix. A Dec. 18 to Jan. 7 free delivery promotion on orders over $10 placed on the Chipotle downloaded mobile app or Chipotle.com certainly helped comps... Given the 4% comp in October, as provided on the last call, and "October and November [being] pretty similar," implies December was a very strong month primarily due to the launch of the free delivery promo... Better than expected labor drove $0.19 of upside... Store margins were 17.0% vs our 16.2% and 14.9% last year..."

This is a developing story. Check back for updates.