On Tuesday, Wolfe Research reaffirmed its positive stance on Chipotle Mexican Grill (NYSE:CMG), maintaining an Outperform rating with a stock price target of $2,850. The firm highlighted the reintroduction of Chipotle's Chicken Al Pastor as a limited-time offering (LTO), which aligns with their findings from social media analysis conducted the previous week.
The timing of this release is expected to benefit the first quarter results similarly to the previous year, with an approximate two-and-a-half-week impact.
The analyst noted the consumer anticipation and familiarity with the Chicken Al Pastor could potentially balance the challenging year-over-year comparisons. The reintroduction of this menu item is particularly noteworthy as it coincides with a period when beef prices have risen more sharply than chicken prices.
In February 2024, the price of beef increased at a higher rate than chicken, with a 7.7% spread, reminiscent of the second quarter of 2023, which saw a 1.5% differential.
Chipotle's strategic menu adjustment in the past has shown favorable effects on profit margins. During the second quarter of 2023, when Chicken Al Pastor was previously offered, there was a noticeable shift towards chicken products, which positively influenced the company's margins.
With the current trend of beef prices increasing at a higher rate than those of chicken, the research firm anticipates that the relaunch of the Chicken Al Pastor could have a similar beneficial impact on the margins for the second quarter of 2024.
The analysis by Wolfe Research suggests that if the trend of beef inflation outpacing that of chicken continues year-over-year, Chipotle could see a repeat of the favorable margin impact observed in the previous year. This potential shift towards chicken, prompted by the reintroduction of the Chicken Al Pastor LTO, is seen as a strategic move by Chipotle in response to the current inflationary trends in the market.
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