MW Chipotle praised for 'quality and size' as it faces a 'choppier' consumer

By Steve Gelsi

Morgan Stanley upgrades restaurant chain to overweight from equal weight and bumps up price target by $5, to $70 a share

Chipotle Mexican Grill Inc.'s stock rose Monday after the restaurant chain picked up a fresh upgrade from Morgan Stanley and the company's chief executive reiterated comments about managing the impact of trade tariffs on avocados as well as other costs.

Chipotle's stock $(CMG.AU)$ moved up by about 2.1% after Chief Executive Scott Boatwright stuck to the company's forecast of a 60-basis-point impact on its cost of sales if President Donald Trump's tariffs on Mexico, Canada and China go into effect, in an interview with NBC News.

The company initially issued the cost estimate on Feb. 4 in its quarterly call with analysts.

Boatwright said the company's menu pricing will stay the same for now.

Separately, Morgan Stanley analyst Brian Harbour upgraded Chipotle's stock to overweight from equal weight and boosted the burrito maker's price target to $70 a share from $65 a share.

Harbour said stocks in quick-serve restaurants have moved lower in recent weeks on economic jitters tied to inflation and tariffs. With Chipotle's stock having dropped more than 9% so far in 2024, "a good entry point has presented itself" to buy in an environment that favors quality and size of business, he said.

"Being larger cap with a strong balance sheet and robust profitability is an advantage for [Chipotle] especially if the consumer is choppier," Harbour said.

Chipotle should fare better in an economic slowdown than most names in the fast-food or casual-dining restaurant universe, he said.

Chipotle may be more at risk than other names, however, for investors that are more bearish on the economic outlook, due to the fact that the company is seen by some as "more discretionary" than some of its rivals, Harbour said.

"[Chipotle] is big and we sometimes hear the argument that the brand faces risk from rising competition, or the next hot fast casual brand, if you will," he said.

While the first- and second-quarter results may not look "great" for Chipotle, "we think the drivers of product, marketing and throughput should still be effective in delivering a decent 2025 and beyond," Harbour said.

Chipotle will also benefit from its leading role in using automation at a substantial scale to reduce costs, drive margins and help the company hold its menu pricing in place, he said.

Other positives for the company include growth in the number of its restaurants and an "enviable" balance sheet, with $750 million in cash, no debt and $1.5 billion in free cash flow in 2024, he said.

Harbour also reiterated an overweight rating on Wingstop Inc. $(WING.UK)$, which he said also offered "very favorable risk-reward skew and less earnings risk than the market assumes."

Also read: Why Chipotle is turning to AI as it steps up its seasonal hiring to 20,000

-Steve Gelsi

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March 03, 2025 10:57 ET (15:57 GMT)

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