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Burrito Purveyor Should See $58 Soon

Fast food IPOs are back in the spotlight now that Canadian coffee chain Tim Horton's (strong sell, based on this equation: IPO + saturated market = financial seizure) has just gotten its public offering off the ground. Analysts, money managers, and bloggers have all speculated over Tim Horton's future (or lack thereof), many of them summing up their bearish stance in terms as simple as "sell Hortons because this is no Chipotle."

Which brings us to the point of this memo.

Chipotle (CMG) has done exactly what we said it was going to do back when it was just a teenager. Currently, Chipotle trades at $52 a share -- that's 3 points away from our $55 price target (go here), which we've now bumped up to $58. After spending 10 long months eating Chipotle's food 3x a week (oh, the things we do to in order to understand a business), we sent this memo to clients back in mid-January:

"Chipotle's IPO is finally here. We have 3 words for you: load the boat. We're not without our reasons. One, Chipotle’s food rocks — we urge you to spend an hour there; you won’t want to leave. Two, Chipotle priced its food perfectly — for just under $10, you get a mean burrito and a Corona. Three, there is indeed a stupendous market opportunity for Chipotle. As it stands, Chipotle's biggest rival is Wendy’s (WEN) Baja Grill. Based on the way investors are punishing shares of Wendy’s, it’s as clear as day: Chipotle’s going to use Baja to mop the floor.

...Chipotle is profitable and we like the company's plans to expand into Boston and Philadelphia late this year. Just think of all those Harvard brainiacs munching down $8 burrittos during study break. We have a $55 price target on the stock — over the next few weeks, the post IPO bears will come out and try to destroy this stock, probably citing valuation gobbledygook and the like. $10,000 says they’ve never tried the food...

Since our 2 buy calls, the stock is up 18%. And Wendy's recently announced it wants to get rid of Baja -- what a surprise.

The food business is notoriously tough, but we're confident Chipotle's shares will edge higher. We can't wait for the quiet period to be over so that analysts can come out of the woodwork and slap multiple upgrades all over this bad boy.

posted by Catablast! Media Group @ 11:16 PM