It’s been a while now that analysts have been singing the praises of Mexican fast food chain, Chipotle Mexican Grill (NYSE:CMG). While many of the company’s competitors – McDonald’s (NYSE:MCD), Burger King (NYSE:BKW), and Taco Bell (NYSE:YUM) – have suffered slipping sales, Chipotle’s business has been stronger than ever, and that led Belus Capital’s Brian Sozzi to upgrade shares of Chipotle from Hold to Buy on Wednesday morning, also raising his price target from $500.00 to $600.00.
Benzinga reported the news later on Wednesday and highlighted the timing of Sozzi’s note that came just weeks after Chipotle’s impressive fourth-quarter results. Sozzi now believes that the company’s stock is “destined to hit $1000,” and the analyst cited a number of reasons this week why he and his fellow analysts are so optimistic about Chipotle. Though he had both short-term and long-term rationalizations for the Street’s confidence, we’ll sum up his top five.
1. Switch to a non-GMO menu
This is a big one for Chipotle, as it is one of the first restaurants that has committed to eventually offering its customers a complete GMO-free menu. GMOs, or genetically modified organisms, have drawn significant attention from health-conscious consumers as of late, and now that more and more Millenials are watching what they eat, Chipotle’s commitment to going GMO-free makes the restaurant especially appealing to them. Though there is still no conclusive evidence that GMOs are harmful to humans, many customers still feel better eating fast-food knowing that it is GMO-free, and that is what has kept Chipotles’ lines long and its consumers loyal.
Thanks to social media and good old-fashioned word of mouth, news have traveled fast that Chipotle is committed to its consumers’ health, and customers have rewarded Chipotle by continuing to support its business. Thanks in part to its new commitment, Sozzi is confident that this trend is one that is here to stay.
2. Quicker Service
Another strength that Sozzi cites is Chipotle’s quickening service. Yes, the company’s lines are usually long and now almost every hour is a peak hour at Chipotle. However, the company’s employees have worked diligently to improve the time they spend on each customer’s orders, and hungry eaters appreciate that. Lines move quickly and good customer service has kept Chipotle in the good graces of its consumers, and deservedly so.
What’s more, Chipotle’s business structure guarantees that order mistakes don’t get made. McDonald’s and Burger King customers often complain that when they get home, they open their take-out bag to a meal that they didn’t order, but such is never the case at Chipotle, because consumers watch every ingredient that goes into their dishes. Visitors are allowed to dictate exactly how much cheese, lettuce, guacamole, and salsa they want.
3. Introduction of New Menu Items
Like many of its rivals, Chipotle has worked to launch new menu items, which analysts see as important — but Sozzi also recognizes the chain’s “careful introduction” of new items rather than its interest in overwhelming consumers with them. Businesses like McDonald’s have actually suffered recently from making the mistake of overcomplicating their menus and overworking their employees, and Chipotle has been careful to avoid that — only introducing items one at a time and conducting significant research before making any big moves.
The chain introduced tofu in the summer, attracting more of its vegetarian Mexican lovers, and now it is focusing in on its sofrita efforts. In addition, the one time of day where you might not find long Chipotle lines is in the morning, and now Sozzi believes that the company is in the midst of slowing working to change that.
4. Menu Price Hikes
Here’s another strength that Sozzi believes will support Chipotle’s business in the long-run — even if it doesn’t exactly appeal its customers. After the company’s latest earnings reports back in January, we learned that Chipotle was considering a menu price increase of 3 to 5 percent by mid-2014. Many analysts sung the initiative’s praises, believing the price hike would significantly help Chipotle’s same-restaurant sales, but others questioned whether the higher prices would deter customers. As for Sozzi, he doesn’t believe the latter. The analyst is so confident in Chipotle’s appeal that he maintains that a price increase would only help the fast food company, not hurt it, giving the chain’s possible menu price hikes a spot on this list.
5. Mobile Payment Investments
Lastly, analysts see hope for Chipotle’s new-and-improved launch into the mobile world. The company has already allowed customers to order off its popular mobile app since 2009, but Chipotle executives announced earlier in February that they plan to invest $10 million to further develop its mobile platform, including adding mobile payment. That is expected to mean big things for the chain moving forward, further speeding up its service lines and ensuring that all food is made ready-to-order, and that investment is now just one of many reasons analysts like Sozzi believe that Chipotle is equivalent to stock gold.