One fast-casual restaurant chain remains a favorite on Wall Street, even as the United States faces the prospect of a looming recession. Analysts expect Chipotle Mexican Grill stock to rise nearly 20% next year. In the past 15 months, the burrito chain has introduced three price increases for him, resulting in a 13% year-over-year rise in the cost of its products. The increase was due to higher costs of dairy products, packaging, tortillas and avocados, as well as higher wages in some regions. The decision boosted sales and protected margins, but some investors wary of the price hike opposed it, fearing it would alienate customers. The stock will see him drop 20% in 2022. Consensus analyst valuations are overweight at his $1,778 average price target per FactSet. That means it’s up 18% since Thursday’s close. Bernstein analyst Danilo Gargiuro said in December that it would “attract high-income consumers, leverage a strong debt-free balance sheet to drive growth, and demonstrate growth’s tenacity during past recessions.” Based on track record, CMG should double even in softer macro conditions,” wrote . . 8 notes, naming Chipotle a top pick. His ratings are outperforming and the stock target is his $1,900. Chipotle has raised its prices so much in the past year and a half that it won’t need to raise more in the near term, said Nick Setiyan of Wedbush Securities. “I think many other restaurants, especially in the fast-casual category, will raise prices to offset what could be mid-single- to single-digit inflation across food and labor costs in 2023.” He added: Chipotle doesn’t have to do this. “Whatever value gap they’ve given up over the past year or so, they’ll be able to recover,” he said. We expect transactions that are likely to be loss-making in the first quarter of 2023 to turn positive in the first quarter of 2023. Other analysts agree. David Palmer, who also rates Chipotle as a buy, is his top pick for 2023, with a target price of $2,000, one of the highest on the street. We expect traffic to improve by the quarter. He also sees Chipotle shipping rates, which have weighed on the company, continue to improve. Chipotle sources some of its ingredients through multi-year contracts with small farmers, avoids some of the major food suppliers, and limits exposure to commodity price fluctuations, so it has some price protection. This gives analysts some insight into the expected margin expansion in 2023, which sets it apart from its competitors, Setyan said. “I also think their particular basket of commodities could result in lower inflation than their peers,” Setian said. Value perception becomes important when consumers feel the need to tighten their belts further. And they may. Bank executives said on Friday they were increasingly optimistic that a mild recession could be expected this year. JP Morgan’s Jamie Dimon and Bank of America’s Brian Moynihan are also in the camp. With insight into both consumer savings and credit card habits, as well as business spending, they are well-positioned to spot upcoming trends. CMG YTD Mt. Chipotle YTD The fast casual sweet spot Chipotle also has history. It worked well during the 2008 global recession, says William Blair’s Sharon Zackfir. She has a buy valuation on the stock that in 2023 she is up nearly 9%. She added that Mexican food is a frequent dish for many consumers, and that Chipotle has the advantage of fresh ingredients that mean health. One reason analysts see it is because of its positioning in the fast-casual dining space. “The fact that most job cuts are concentrated in the middle to high income bracket is destabilizing,” he said. He also added that job prospects remain strong for low-income consumers, which bodes well for Chipotle. “They represent good value,” Palmer said. The price gap between the US and the U.S. remains unchanged: an order of a burrito is still $12 nationwide, except for New York City.” Additionally, many Wall Street analysts are predicting a mild recession. That’s good for fast-casual restaurants, as consumers don’t expect to have to pull back significantly or for very long. Another reason is the potential for solid growth in the coming months and years. The company has more than 3,000 of his locations in the U.S. and plans to continue adding features such as value-adding digital ordering with drive-thru. “When you have a company with 3,000+ locations, it’s very exciting, but it still feels like a white space story,” he said Zackfia. In its October earnings call, Chipotle predicted that in 2022 he would open 235 to 250 new restaurants, picking up the pace to 255 to 285 openings in 2023. A final recession that adds a buffer to trading, even in a potential economic slowdown. A Solid Industry Of course, just because Chipotle did well in the last recession doesn’t mean it will outperform again if the US economy weakens. One of the biggest disruptions to analysts’ expectations is if Chipotle continues to raise prices. This may increase sales, but may drive consumers away. But overall, Wall Street sees fast-casual restaurants holding up in the downturn. Beyond Chipotle, Rival Yum! Brands, which operates Taco Bell, Pizza Hut, and KFC, is also highly rated by analysts. The median is overweight, up more than 7.25% from Thursday’s close.
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