Shares of fast-casual restaurant Chipotle Mexican Grill (NYSE:CMG) shot up as much as 6.7% on Wednesday, following an analyst upgrade on the stock. Shares finished the trading day up 6.6%.
The improved rating for Chipotle stock, along with a price target increase, came from Morgan Stanley analyst John Glass. The analyst's optimism for the stock reflects his increased confidence in the company's turnaround efforts.
While still early days in the brand's long-awaited recovery, there is increasing evidence that makes our bull case scenario more believable, including (1) a change in management, with an incentive plan designed to deliver the bull case in earnings (+$20 in EPS [earnings per share]), (2) plenty of low-hanging opportunities in marketing, product development, and operational initiatives to drive sales, and (3) a more benign competitive environment
With Glass' revised price target representing about 22% upside from where shares were trading on Tuesday, it's easy to see how the analyst's rating change served as a catalyst for the stock on Wednesday.
Since former Taco Bell chief Brian Niccol took the helm at Chipotle in March, investors have looked to the veteran executive to pull off what he did at Taco Bell: Turn around the business.
Niccol's plan from the start has been to improve customer experiences, menu innovation, and digital communications. "This will attract customers, return the brand to growth, deliver value for shareholders and create opportunities for employees," Niccol said in a press release when he joined Chipotle.
Niccol's efforts appear to be paying off. In Chipotle's most recent quarterly report, management raised its guidance for full-year comparable restaurant sales growth, forecasting the key metric to increase "in the low to mid-single digits" on a percentage basis. This was above previous guidance for low-single-digit growth.