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Chipotle Stock Rises on Goldman Sachs’s ‘Buy’ Rating

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Chipotle stock (CMG) was up 2.9% as of 1:46 PM ET today as Goldman Sachs initiated coverage with a “buy” rating. Goldman Sachs assigned a price target of $1,000, implying upside of 28% based on yesterday’s closing price. According to a CNBC report, Goldman added Chipotle to its “Conviction list” under the belief that strong online sales will drive further growth.

Today, Goldman also initiated coverage on peers McDonald’s (MCD), Starbucks (SBUX), Shake Shack, and Wingstop with “buy” ratings. Goldman is positive about restaurant stocks, particularly Chipotle, because of strong consumer spending and momentum in the digital channel. Also, food delivery apps and digital ordering are driving rapid sales at restaurant chains and fast food companies.   

Today, Citigroup also raised its price target for Chipotle stock to $955 from $797, backed by strong second-quarter results.

As of 1:46 PM ET today, Chipotle stock and Wingstop stock were up 2.9% and 0.4%, respectively. However, McDonald’s and Starbucks were down 0.2% and 1.3%, respectively. Starbucks stock fell as J.P. Morgan downgraded it to “neutral” from “overweight.”

Stellar Q2 performance driving Chipotle stock

Chipotle’s revenue grew 13.2% to $1.43 billion in the second quarter. Analysts expected revenue of $1.41 billion. Strong digital sales and the addition of new restaurants were the main growth drivers. Same-store sales grew 10.0%, beating analysts’ estimate of 8.3%. Plus, digital sales rose 99.1% to $262 million. They accounted for 18.2% of Chipotle’s overall sales. Currently, over 95% of Chipotle’s restaurants offer delivery service.

Chipotle’s second-quarter adjusted EPS surged 39% to $3.99. The company crushed analysts’ estimate of $3.76.

McDonald’s second-quarter revenue was flat year-over-year at $5.34 billion. Its same-store sales grew 6.5%. McDonald’s adjusted EPS grew 3% to $2.05. Higher revenue, lower taxes, and a lower average share count because of share repurchases drove its earnings growth.

Starbucks’s EPS rose 25.8% to $0.78 in its fiscal third quarter. Its revenue grew 8.1% to $6.82 billion while its same-store sales growth came in at 6%. The company’s performance was driven by strength in its US and China business.

Chipotle’s outlook  

Chipotle stock certainly has come a long way after collapsing four years ago due to food-borne illness outbreaks at the popular chain. The company raised its top-line outlook after its second-quarter results. It expects high-single-digit same-store sales growth compared to the previous guidance range of mid-to-high-single-digit growth. Chipotle aims to open 140 to 155 restaurants this year.

Aside from store expansion, continued strength in digital sales, enhanced menu offerings, and strategic promotions are key drivers for Chipotle.

As of July 26, Chipotle stock was up 80.6% year-to-date. McDonald’s, Starbucks, and Wingstop stocks rose 21.4%, 53.9%, and 51.1%, respectively.

Chipotle stock has a “buy” recommendation from 13 out of 35 analysts. On the other hand, 16 analysts rate it a “hold.” However, six analysts rate the stock a “sell.” The average price target of $747.07 for Chipotle stock reflects a downside potential of 7%.

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