Chipotle Mexican Grill, Inc. (NYSE:CMG) is serving up some nice returns for investors, and Belus Capital Advisors CEO Brian Sozzi thinks the fast casual chain will continue to do so for quite some time. He upgraded the stock from Hold to Buy and raised his price target from $500 to $600 a share in the wake of the company’s last earnings report.
Chipotle versus McDonalds
The strategist notes that the fast food industry is becoming more and more competitive, but he thinks Chipotle has a number of advantages over other companies, particularly McDonald’s Corporation (NYSE:MCD). His firm took 40 “undercover pics” of the environments inside Chipotle Mexican Grill, Inc. (NYSE:CMG), McDonald’s and other fast service chains. He notes some subtle and major differences among them, but he thinks Chipotle definitely has the edge over McDonald’s in terms of the overall customer experience.
Chris Hohn the founder and manager of TCI Fund Management was the star speaker at this year's London Value Investor Conference, which took place on May 19th. The investor has earned himself a reputation for being one of the world's most successful hedge fund managers over the past few decades. TCI, which stands for The Read More
For example, he notes that the menu boards are simpler and easier to read. Also the company’s food preparation practices put it ahead of others as workers arrive early in the morning to chop vegetables and meat by hand, making the experience more personal for the customer. In addition, while McDonald’s Corporation (NYSE:MCD) emblazons the outside of its restaurants with huge advertisements, Chipotle Mexican Grill, Inc. (NYSE:CMG) and the other restaurants he spotlights just make their restaurants look more appealing, inviting and up-to-date.
What’s to like about Chipotle Mexican Grill
He notes that Chipotle Mexican Grill, Inc. (NYSE:CMG) has a price to earnings multiple that’s 42 times 2014 earnings estimates and that some investors are murmuring that shares will hit $1,000. In other words, sentiment regarding Chipotle on Wall Street is quite good. He sees strong growth both now and going forward for a number of reasons.
For example, he said the company is moving its lines along faster and faster, meaning that customers are getting into and out of the line faster during peak times. Customers have also been positive to the company’s new locations and the switch to a non-GMO menu.
In addition, the strategist said that Chipotle Mexican Grill, Inc. (NYSE:CMG) is “guiding the market to new avenues growth” as it strives to justify its valuation. He noted that the chain is speeding up the openings of new locations and being careful about how it introduces new menu items. In addition, the chain has begun a new remodeling campaign in order to “stay fresh and relevant.”
What to expect for Chipotle Mexican Grill
Sozzi expects that Chipotle Mexican Grill, Inc. (NYSE:CMG) will raise menu prices by between 3% and 5% in the middle of this year, which of course would boost same-restaurant sales and more than make up for inflation and non-GMO ingredient investments. He also expects to see more investments in mobile payments.