On Tuesday, Wolfe Research reiterated its positive stance on shares of Chipotle Mexican Grill (NYSE:), maintaining an Outperform rating with a $2,850 price target. The firm highlighted the re-introduction of Chipotle’s Chicken Al Pastor as a limited-time offer (LTO), consistent with the results of a social media analysis conducted the previous week.
The timing of this release is expected to improve first quarter results, similar to the prior year, with an impact of approximately two and a half weeks.
The analyst noted that consumer expectations and familiarity with Chicken Al Pastor could potentially balance difficult year-over-year comparisons. The menu item’s reintroduction is especially noteworthy because it coincides with a period in which beef prices have risen more sharply than chicken prices.
In February 2024, the price of beef rose at a faster rate than chicken, with a spread of 7.7%, which is similar to the second quarter of 2023, when the difference was 1.5%.
Chipotle’s strategic menu adjustments have had a beneficial impact on profit margins in the past. In the second quarter of 2023, when Chicken Al Pastor was previously offered, there was a noticeable shift towards chicken products, which positively impacted the company’s profitability.
Given the current trend of beef prices rising at a faster rate than chicken, the research firm expects the relaunch of Chicken Al Pastor could have a similarly beneficial impact on earnings in the second quarter of 2024.
Analysis by Wolfe Research suggests that if the trend of beef inflation outpacing chicken price increases continues on a year-over-year basis, Chipotle could see a repeat of the favorable margin impact seen in the prior year. This potential shift into chicken, driven by the reintroduction of Chicken Al Pastor LTO, is seen by Chipotle as a strategic move in response to current inflationary trends in the market.
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