Chipotle shares rise as analyst says prices hikes have started

Investing.com -- Chipotle (NYSE:CMG) shares rose more than 2% in premarket trading Wednesday after a Truist Securities analyst said that recent checks indicate price hikes of at least 2% at some stores.

According to analyst Jake Bartlett, Chipotle has raised menu prices by approximately 2% at 20% of its restaurants over the past week. Bartlett, referencing web scrape data, suggested this may mark the beginning of a “system-wide rollout.”

“The menu price increase is earlier than we (and consensus) expected,” and is a positive for the stock,” the analyst said in a note.

The decision to increase menu prices is believed to be made from a position of strength, as recent data indicates robust customer traffic in November without significant concerns regarding operating cost inflation.

The price increase has varied across different menu items, with chicken seeing an average hike of 2.2%, steak 1.9%, and carnitas (pork) 3.0%. Bartlett projects that the entirety of Chipotle's US stores will soon follow suit with similar price adjustments.

“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.

Furthermore, the Truist Card Data revealed a slight acceleration in traffic for Chipotle in November, continuing the positive trend observed in previous months. This suggests that the company's performance remains strong, providing the confidence to implement price increases without merely aiming to meet estimates.

Despite potential inflationary pressures, such as the cost of avocados, the spot market prices for most of Chipotle's food commodities have declined since the company's last guidance report.

This includes key ingredients like chicken, beef, and dairy. As a result, the analyst has reduced the cost of goods sold (COGS) estimate for the fourth quarter of 2024 to 31.0%, slightly below the consensus and the company's guidance.

“We are increasing our 4Q24 restaurant-level margin est. to 24.7% (-70bps Y/Y), from 24.5%,” Bartlett highlighted.

Taking into account the incremental menu pricing, the analyst has raised the price target for Chipotle's stock to $74, up from the previous $72. Adjusted EPS estimates for 2024 and 2025 have also been increased to $1.13 and $1.39, respectively.