By Tonya Garcia
The new year is just getting started but analysts have already upgraded Chipotle Mexican Grill Inc. and downgraded Starbucks Corp., with experts concerned that cost inflation will take a toll on the entire restaurant category.
Chipotle /zigman2/quotes/200781108/composite CMG +1.70% was upgraded to outperform from perform at Oppenheimer, with analysts identifying a few factors that could drive business gains, including the addition of Chipotlanes, which provide drive-thru order pickup service, and strategic pricing.
Oppenheimer has a $1,925 price target on Chipotle shares.
“We believe same-store sales drivers remain powerful as digital, loyalty, marketing, innovation all hold further upside,” analysts led by Brian Bittner wrote.
“Digital has represented a business transformer at 43% of sales (vs. 20% pre-pandemic) and has enabled access to a powerful loyalty base of 24.5 million members (and growing),” they said.
The fast-casual chain also has wiggle room in pricing.
“This buoys our restaurant margin expansion forecasts over the next two years, despite the industry’s inflation headwinds,” Oppenheimer said.
In the same report, Oppenheimer downgraded Starbucks /zigman2/quotes/207508890/composite SBUX +2.03% to perform from outperform.
“As we turn to 2022 and 2023, our deep-dive analysis suggests the financial model now lacks the levers for a ‘beat and raise’ thesis,” Oppenheimer said.
“2022 represents an ‘investment year’ and its margin headwinds are well-understood… We continue to believe same-store sales trends and unit growth drivers are firmly intact, but wait to uncover new drivers of outperformance to become more bullish.”
Starbucks was also downgraded to sector perform from outperform at RBC Capital Markets. Analysts shaved $2 off of the price target, to $122.
“[T]he ongoing investment in its employees is core to Starbucks’ operating strategy and principles, and likely the right decision for the business over the long-term,” analysts led by Christopher Carril wrote.
“We continue to believe this is the case, but given the magnitude of cost pressures in FY22, we see potential for lingering debate around the timing of a return to Starbucks’ ongoing target of 18-19% operating margin.”
Despite the change in rating, RBC says much will stay the same moving from 2021 to 2022.
“Our broader thesis for the group remains unchanged from 2021, as we continue to favor long-term restaurant growth stories— supported by relatively strong and/or improving unit economics—amid a backdrop of reduced industry supply,” analysts said in a separate note.