Despite the possibility of a recession in the United States, Goldman Sachs recommends investors purchase Chipotle stock (NYSE:CMG).
Chipotle (NYSE:CMG) remains, in the opinion of Goldman Sachs analyst Jared Garber, “one of the most compelling growth stocks in the industry given the strong top-line (unit growth and same-store sales),” he wrote in a client note on Tuesday. “We continue to view Chipotle (NYSE:CMG) as one of the most compelling growth stocks in the industry.”
Chipotle (Chipotle stock: CMG) will report earnings for the third quarter on October 25
The fact that more people are going out to eat in person is one of the factors that has led analysts to anticipate a mid to high-single-digit percentage gain in same-store sales for the upcoming quarter. Additionally, the corporation increased pricing by 4% in August, which should have helped boost sales.
According to Chipotle CEO Brian Niccol, the restaurant business is prospering despite the recent dip in the economy because it caters to increasingly wealthy households.
Niccol’s presentation at the Yahoo Finance All Markets Summit stated, “Our brand is positioned in a terrific spot.” “It should come as no surprise that some of our clients have a higher household income than the norm. We also have a predominantly younger demographic, although customers come from a wide range of financial levels. And I hate to see some of the lower income people being impacted the way that they have been, but I’m thankful that we’re positioned the way that we are because of our dedication to producing food without compromising its safety or quality.”
The following additional information pertains to the call that Goldman Sachs made on Chipotle stock (NYSE:CMG):
Overview
Rating: Buy
Aiming for a price of $1,840
Upside Assumed: +20%
In addition to ongoing menu innovation, Goldman Sachs is positive on Chipotle’s longer-term prospects due to the company’s pricing strength and its continuous commitment to building additional stores.
“Chipotle is one of the most intriguing growth companies in the sector in our opinion due to the company’s strong top-line (unit growth and SSS) and leading margin profile. Chipotle continues to leverage its robust digital foundation, premium protein LTO strategy, and pricing power in order to drive incremental traffic and average check (for an analysis of the new Garlic Guajillo Steak limited-time offering, see below), as well as to offset the effects of inflation and maintain already strong restaurant-level margins.”
Reducing the inflation rate should also benefit Chipotle’s profit margins, as it is expected to do.
“The pressure from rising food costs looks to be diminishing, leaving potential for possible margin expansion. We are encouraged around the recent moderation and see this driving potential margin upside for 4Q. While chicken thighs were still inflationary throughout 3Q22, we are encouraged around the recent moderation and see this driving potential margin upside for 4Q. The price of several key commodity inputs for Chipotle has improved in recent months, including avocados and chicken thighs. We believe that the less inflationary environment does give the company more price cushion should they begin to see consumers becoming more price-conscious. Overall, we see less risk that inflationary food costs will drive an earnings/margin miss for Chipotle in 3Q22/4Q22, and we believe that this less inflationary environment does give the company more price cushion.”
Regarding work, Goldman observed, “It would appear that the atmosphere for recruiting and staffing is beginning to ease, and wage inflation levels are beginning to decelerate… Having said that, we do believe that there is a possibility of an upside risk to labor margins if in-restaurant traffic continues to rebound (traffic was +3.5-4% in 2Q, and in-restaurant orders grew at 35% year over year in 1H22), and if digital levels continue to remain firm (low 40% range). Restaurant throughput was a key topic of discussion during Chipotle’s 2Q22 earnings call as the company works to improve onboarding and training for the vast number of new employees hired last year. We expect to be given an update on efficiency/labor initiatives currently underway as we see this as another underlying driver of same-store sales momentum as Chipotle recovers towards historical performance levels.”
Featured Image: Megapixl © Bigapplestock
Author Valerie Remorosa 
