Share prices of Chipotle Mexican Grill (CMG 1.39%) rose to new highs following another strong earnings report. In the first quarter, the company's revenue and earnings beat the Street's estimates, leading analysts at Baird to bump their price target.
The firm maintained an outperform (buy) rating on the shares and raised the 12-month price target from $3,250 to $3,500, or just under 10% higher than the current share price of around $3,185. Be aware that this price target total will change if Chipotle shareholders approve a proposed 50-for-1 stock split sometime in June.
What is driving Wall Street's optimism?
Chipotle has long been one of the top-performing restaurant chains in the industry, and its first-quarter update continued to validate that position. A solid comparable sales increase of 7% combined with 47 new restaurant openings helped drive a 14% year-over-year increase in total revenue.
Management raised its full-year guidance for comp sales, which is now expected to increase in the mid to high-single-digit range in 2024.
Is the stock heading to $3,500?
The stock has been on a tear, up 71% over the last 12 months. This also means the stock's valuation has stretched to a premium forward price-to-earnings (P/E) ratio of 55. That looks expensive, but Chipotle has historically traded at a high P/E due to the company's high margins.
Baird noted the company's strong comp sales momentum, which continued into the second quarter, in bumping the price target. Other restaurant businesses are not experiencing such strong growth right now, which is another reason Chipotle deserves to trade at a higher valuation.
Given Chipotle's strong adjusted earnings growth of 27% in the quarter, it's not a stretch to believe the stock can hit the analyst's price target in the near term.
