Chipotle takes another step closer to margin goals with steak price hike: Truist

MW UPDATE: Chipotle takes another step closer to margin goals with steak price hike: Truist

Tonya Garcia

Chipotle stock has more than doubled over the past year

Chipotle Mexican Grill Inc. $(CMG)$ has raised prices on its steak and barbacoa offerings according to checks conducted by Truist Securities analysts, and the move will bring the fast-casual chain closer to achieving margin goals.

Menu price checks conducted last week found a 4% price hike on the items systemwide.

Truist estimates that beef is included in 25% to 30% of the chain's average check.

"We believe the primary driver of the menu price increase is the higher steak sales mix during the pandemic, which pressures margins," analysts led by Jake Bartlett wrote in a note.

"Along with delivery menu pricing, in our view, the increase in steak menu prices demonstrates management's commitment to achieving its long-term margin framework, which would drive significant upside to estimates."

Truist rates Chipotle stock a buy with a $1,750 price target, up from $1,700.

See:Chipotle CEO's 2020 pay more than doubles, as COVID-related PSU modifications provided a $23 million boost

Also:Chipotle invests in driverless delivery company, Nuro

Beef is a hot item on the Chipotle menu.

Carne asada was a hit after it was introduced for a limited time, adding 150 basis points to the average check.

In September 2020, Chipotle brought back carne asada after finding a supply that meets the company's standards. At the time, Chipotle said it was looking for ways to make the item a permanent part of the menu.

Last month, Chipotle launched quesadillas that brought items inspired by Chipotle food, like an Extra Guac Face Sponge Set, to beauty customers.

Read:Wingstop gave investors a peek at Q1 results and may have set the bar too high

Stifel analysts have named Chipotle one of its favorites heading into the post-COVID period, along with Wingstop Inc. $(WING.UK)$ and Papa John's International Inc. $(PZZA)$, calling the three "growth stocks."

"We believe the time to build positions in growth stocks is during periods when others are concerned about transient issues, such as difficult comp comparisons," analysts wrote.

"The initiatives many of these concepts have in place should ultimately lead to a high level of sales retention in 2021, clearing the way for investors to focus on longer-term growth prospects and leading to improving sentiment in the back half of the year."

Stifel is confident about Chipotle's initiatives, including menu innovation, going forward. Stifel rates Chipotle stock buy with a $1,550 target price.

Chipotle stock has more than doubled, up 111.2% over the past year. The benchmark S&P 500 index is up 53.2% for the period.

-Tonya Garcia; 415-439-6400; AskNewswires@dowjones.com