Long a popular stock in the restaurant sector, Chipotle Mexican Grill (CMG 0.76%) still has quite some room to run, according to one analyst at a major U.S. bank. Towards the end of January, the prognosticator lowered his price target on the shares, but he maintained his buy recommendation. Let's pick apart that move a little.
A tiny cut
That modification, from Citigroup's Jon Tower, was only a slight one. Tower shaved $1 off his existing fair value assessment to land at $69 per share for Chipotle. At this level for the analyst, the stock remains a buy.
According to reports, in his update on the stock Tower wrote that investors have become concerned with potential erosion in comparable-restaurant sales recently. Apparently, many of these fears are based on the recent rounds of adverse weather in certain parts of this country.
Yet, the analyst expressed confidence that stock price drivers such as the timing of limited-time menu items and improvements to order throughput will assuage such fears. He still feels that Chipotle is undervalued given the company's significant long-term opportunities driven by these factors.
Popularity that's entirely deserved
Another element likely making some investors hesitant is Chipotle's top-level managerial adjustment; in November -- following the departure of Brian Niccol to take up the CEO chair of Starbucks three months previously -- Chipotle made Scott Boatwright its permanent CEO after a stretch as interim leader. Boatwright, however, is a company veteran, and as such he isn't likely to deviate wildly from the strategies that have made it successful.
Chipotle has been a favorite restaurant stock of many investors for good reason -- the company consistently delivers solid growth and profitability numbers. Exciting times indeed lay ahead, with efficiency measures and recent innovations like the Chipotlane drive-thrus. I feel Tower's continued bullishness on the stock is fully justified.
