Chipotle Shares Rise on Price Increases

Investing.com — Chipotle (NYSE:CMG) shares rose more than 2% in premarket trading on Wednesday following a Truist Securities analyst's report indicating price hikes of at least 2% at certain locations.

Analyst Jake Bartlett noted that Chipotle has increased menu prices by around 2% at 20% of its restaurants over the past week. His analysis, which is based on web scrape data, indicates that this could signal a "system-wide rollout" of price increases.

> "The menu price increase is earlier than we (and consensus) expected, and is a positive for the stock," Bartlett commented in a note.

This price increase is seen as coming from a position of strength, backed by data showing robust customer traffic in November without major concerns about operating cost inflation.

Price adjustments have varied across menu items, with chicken rising 2.2%, steak by 1.9%, and carnitas (pork) by 3.0%. Bartlett anticipates that Chipotle's US stores will soon implement similar price changes.

> "We view a ~+2% total price increase as a reasonable assumption at this point, but see potential upside as higher income markets like CA and NY get an increase," he wrote.

Additionally, Truist Card Data indicates a slight uptick in traffic for Chipotle in November, maintaining a positive trend from previous months. This suggests the company's strong performance allows for price hikes that aren’t merely aimed at meeting forecasts.

Despite inflationary pressures, such as rising avocado costs, spot market prices for most of Chipotle's food commodities have declined since the last guidance report, covering key ingredients like chicken, beef, and dairy.

As a result, the analyst revised the cost of goods sold (COGS) estimate for the fourth quarter of 2024 to 31.0%, slightly lower than consensus and the company's guidance.

> "We are increasing our 4Q24 restaurant-level margin estimate to 24.7% (-70bps Y/Y), from 24.5%," Bartlett emphasized.

With the additional menu pricing, Bartlett has raised the price target for Chipotle's stock to $74, up from $72. Adjusted EPS estimates for 2024 and 2025 have also been updated to $1.13 and $1.39, respectively.