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On Tuesday, Wolfe Research reaffirmed its positive stance on Chipotle Mexican Grill (NYSE:), maintaining an Outperform rating with a stock price target of $2,850. The company highlighted the reintroduction of Chipotle’s Chicken Al Pastor as a limited-time offer (LTO), consistent with the results of social media analysis conducted the previous week.
The timing of this release is expected to benefit first quarter results similarly to the prior year, with an impact of approximately two and a half weeks.
The analyst noted that consumer anticipation and familiarity with Chicken Al Pastor could potentially offset challenging year-over-year comparisons. The reintroduction of this menu item is particularly noteworthy as it coincides with a period in which beef prices have risen more sharply than chicken prices.
In February 2024, the price of beef increased at a faster rate than chicken, with a spread of 7.7%, reminiscent of the second quarter of 2023, which saw a spread of 1.5%.
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 notable shift towards chicken products, which positively affected the company’s margins.
Given the current trend of beef prices rising at a faster rate than chicken prices, the research firm expects the Chicken Al Pastor relaunch could have a similar beneficial impact on margins for the second quarter of 2024.
Analysis from Wolfe Research suggests that if the trend of beef inflation outpacing chicken inflation continues year after year, Chipotle could see a repeat of the favorable impact on margins seen in the prior year. This potential shift towards chicken, prompted by the reintroduction of Chicken Al Pastor LTO, is seen as a strategic move by Chipotle in response to current inflationary market trends.
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