Chipotle Mexican Grill Inc.’s efforts to build its digital and delivery business will pay off well into the future, analysts say.
Chipotle /zigman2/quotes/200781108/composite CMG +0.74% is scheduled to report third-quarter earnings on Wednesday after the closing bell.
Chipotle has talked about its digital efforts at length in previous earnings reports . KeyBanc Capital Markets analysts led by Eric Gonzalez highlight Chipotle’s “rapid digital growth [which] has helped the chain’s digital mix sustain in the high-50% range since early 3Q, compared with a pre-COVID-19 mix in the high-20% range and a peak above 70% in late April.”
KeyBanc rates Chipotle stock overweight and raised its price target to $1,475 from $1,300 in its most recent note.
“We believe Chipotle’s digital sales are proving to be sticky and new customers are increasingly entering the brand through these channels,” KeyBanc said.
KeyBanc analysts note that the company is lapping the launch of carne asada, driving a “slight deceleration” in same-store sales growth in recent weeks. Carne asada was a successful limited-time menu addition, which the company brought back last month.
“While sick-pay, cleaning supplies, and other COVID-19 costs might hold back margin potential in the near term, its high digital mix… should afford it strong flow-through due to efficiencies created by the second make line in labor, portion control, and food waste,” analysts said.
UBS analysts are also increasingly focused on margins, however, higher delivery pricing should help.
“While 3Q margins could remain choppy given labor (dining room reopenings), commodities and delivery, we believe tests of delivery pricing strategies will likely yield long-term margin and earnings per share benefits,” analysts wrote.
“We view Chipotle as well-positioned given digital focus, accelerating unit development, and multi-year sales and EPS growth potential.”
UBS rates Chipotle stock neutral with a $1,200 price target.
Truist Securities has conducted checks of 50 locations and found 15%-to-16% delivery price increases compared with an average price increase of 9% at the beginning of September, which analysts say indicates that demand is there despite the price hike “and could boost both sales and margins.”
The pricing is still a test Truist says, and the impact on sales will likely be “muted” in the fourth quarter since there was a $3 delivery fee last year, compared with a $1 fee now.
Truist rates Chipotle stock buy with a $1,580 price target.