The bear-market selloff in Chipotle’s stock has created an ‘attractive’ buying opportunity, analyst says

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A bear-market sell-off in shares of Chipotle Mexican Grill Inc. has created an “attractive entry point” for investors, and has tempted Morgan Stanley analyst John Glass to call the fast-casual restaurant chain a “risk.”

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Chipotle Stock CMG,
-0.62%
It fell 0.6% to $1,498.13 on Friday, the first sub-$1,500 close since June 24, 2020. The stock is now down 22.9%, closing at a record $1,944.05 on September 23, 2021, compared to a 48% gain in the S&P 500. index spx,
+0.08%
at the same time.

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Many on Wall Street define a bear market as a decline of 20% or more from a bull-market peak. On that basis, Chipotle’s stock entered its current bear market on January 10, when it closed down 20.6% from its record. This is the first bear market since March 2020, when it fell by 50% from its then-record in February.

Glass upgraded Chipotle to overweight, and increased its price target to $1,920, meaning it is up about 28% from current levels.

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“While we don’t have a changed view of fundamentals, we see this as an attractive entry point for best-in-class growth stocks in restaurants,” Glass wrote in a note to clients.

Chipotle’s “unique combination of characteristics” is perhaps the companies’ strongest pricing power, which Glass believes is important in the current inflationary environment. He added that Chipotle has already used its pricing power “generously” without hurting transaction growth, as the company has “the richest (and young) customer base” among large-chain restaurants. .

Glass also pointed out that Chipotle’s business has been “fundamentally transformed for the better” by COVID-19, as it accelerates digital penetration. Digital sales have tripled post-COVID and now account for nearly half of total sales, said Glass, which has fueled the adoption of mobile ordering and payments, which is Chipotle’s highest-margin channel. .

At the same time, Glass acquired Domino’s Pizza Inc. Downgraded to DPZ.
-1.74%
The pizza restaurant chain’s stock posted a 47.2% increase in 2021 after outperforming its peers, for the same weight. The stock fell 1.7% to $473.04 on Friday, and is down 16.2% since closing at a record $564.33 on December 31.

“While DPZ’s [Domino’s] While still embodying many characteristics of a great long-term growth Compounder, we see limited justification for many further expansions, especially with DPZ’s sales growth likely to normalize after experiencing substantial COVID (and incentive) benefits Is.
In 20/21,” Glass wrote.

He founded Restaurant Brands International Inc. Downgraded QSR as well.
-0.99%

QSR,
-0.77%,
Burger King, the parent of the Popeyes and Tim Hortons restaurant chains, for underweight. Glass said he believes Burger King is still in the early days of change in America, which could take longer than expected. He is also concerned about Tim Hortons’ higher-than-average sensitivity to COVID risk and signals that spending is rising and could outweigh Wall Street’s forecasts in the future.

The stock fell 1.0% on Friday to $57.19, and is down 18.8% since closing at a two-year high of $70.47 on June 1, 2020.

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