Chipotle Mexican Grill (CMG 0.56%) is coming off a solid year of growth, and analysts at Citigroup expect the company will file a report that keeps the momentum going when it releases first-quarter results on April 24.
Citi maintained a buy rating on the shares but raised the price target from $3,016 to $3,358, or a 15% upside over the next 12 months or so from the current share price of $2,918.
Of course, the price target is not as relevant to a long-term investor as much as the reason behind the call. The analyst believes the company's initiatives to improve traffic flow in restaurants should continue to drive strong same-store sales growth.
Why buy Chipotle stock
The company delivered an impressive fourth-quarter earnings report earlier this year, with revenue and earnings increasing by double-digit rates. Management is looking to achieve much more.
On the earnings call in early February, executives outlined their strategy to drive higher throughput at restaurants by staffing more people on the frontline. Chipotle has always prioritized speed and efficiency, in addition to offering quality food. The formula has delivered stellar revenue and earnings growth that has made the stock a terrific performer for many years, but management sees a lot more upside with this strategy.
Chipotle reported earnings growth of 27% year over year in the fourth quarter. Citi analysts expect the company to maintain annualized growth in earnings over 20%.
The stock's valuation looks expensive, but the company's execution and high double-digit earnings growth should support its forward price-to-earnings ratio of 54.
It's always difficult to know how a stock will behave following an earnings report, but Chipotle still has a lot of growth opportunities. Citi expects the company to maintain its current restaurant opening pace of expanding the base at a high-single-digit percentage increase each year. Management believes it can double its current footprint to 7,000.
