Why is the Chipotle Stock Price Surging This Week?

Key Points

• Chipotle's stock price is off to the race despite no news from the company.
• However, one analyst gave the share an overweight rating on Monday, which could have injected some momentum into its rally.
• The company's outlook for the rest of this year is also positive and shows strong resilience during economic downturns.

The Chipotle Mexican Grill NYSE: CMG stock price is surging this week amid receiving positive coverage by analysts on Monday.

Shares of the fast-casual restaurant brand are currently up 2.92% from yesterday's close and 5.44% over the past five days. The recent upgrade seems to have given bulls momentum to keep the rally moving upward.

The price appreciation in Chiptole's share also coincides with a rise in the broader markets. The S&P 500 is up 3.08% from yesterday's close after reaching a low on Jan 19, which puts it up 0.51% over the past five days.

Markets are rallying ahead of earnings season, as well as signs that inflation in the US is easing. This, in turn, is giving hope to investors that the Federal Reserve will engage in a more dovish monetary policy, thereby putting pressure off stocks and reducing the chances of the US tail spinning into a recession.

Let's take a look at some of the recent analyst coverage for Chipotle.

What did the analysts say?

Wells Fargo & Co NYSE: WFC posted a research note on Monday giving an overweight rating to Chipotle's share. 

An overweight stock rating is a recommendation made by stock analysts and financial advisors when they believe that a particular stock is undervalued and that current market prices do not reflect its true potential. This is in contrast to an underweight rating, which recommends that a stock is overvalued and the market price is too high.

The rating largely echoes Wall Street's opinion regarding the stock. At present, 23 analysts rate it as a buy, giving it a Moderate Buy Rating. The MarketBeat consensus price target also shows some appreciable potential at the time of writing, showing a 13.46% upside.

Part of the overweight rating also means that Chipotle will outperform its sector peers. With this in mind, retail and wholesale companies have a Hold consensus rating from analysts. It should be noted that on a price-to-earnings (P/E) basis that Chipotle is more expensive than its peers in the same sector. The company's P/E is 55.60, while the sector's P/E currently stands at around 44.45.

How will Chipotle perform in the future?

The share's earnings per share (EPS) is expected to grow from $33.34 to $42.58 per share for a sizable growth of 27.71% in the coming year. Chipotle has seen impressive growth over the past five years, with revenue increasing at a compound annual growth rate of 14%.

Over parts of the stock's fundamentals are also going strong. The company currently has 3,090 stores and plans to open between 235 to 250 new stores this year, with 270 planned for 2023. 

Several factors have driven Chipotle's growth. Its innovative menu, use of technology, and focus on sustainability have helped to differentiate it from its competitors. This, combined with strong operational execution and well-executed marketing campaigns, has enabled it to capture market share and drive same-store sales growth. 

Is Chipotle a good hedge against a recession?

During a recession, people may be more likely to turn to fast-food restaurants as a cheaper alternative to dining out. This could help Chipotle's sales stay strong even in an economic downturn. Additionally, the company has recently begun to expand its delivery services, which could help it capture a larger share of the fast-food market.

Chipotle's management team also has a strong track record of making wise investments and taking calculated risks. This, combined with the company's low debt and strong balance sheet, makes it a relatively safe investment. The company has increased its cash yearly since 2019 and currently stands at $1.076 billion. Meanwhile, its total debt last quarter was 3.729 billion.

Chipotle also has a long history of success during past economic recessions. The chain has maintained its high sales and profits throughout multiple economic downturns, showing that its business model is resilient to economic volatility.

This is a major plus for investors, suggesting that Chipotle will continue to do well if one comes to a head this year. In December 2010, the company's fourth-quarter revenue grew to $482.5 million, up 24.5 percent from the prior year. Net income also grew to $46.4 million, compared to $31.6 million in the corresponding period last year.