Chipotle's stock is due for a rebound from 'slop bowl' malaise

By Bill Peters

A more measured approach to pricing this year - along with new menu items and an effort to ride the high-protein craze - could help demand, Mizuho analysts say

Mizuho analysts upgraded Chipotle's stock on Friday.

Shares of Chipotle Mexican Grill are down around 33% over the past 12 months, after consumers got bored of the fast-casual industry's high-priced "slop bowls" last year. But Mizuho analysts on Friday said better days are ahead for the stock.

They said the chain's plans to take a more measured approach to pricing, along with new menu items and an effort to ride the high-protein craze, would help Chipotle's (CMG) sales this year. And they said they were encouraged by recent same-store sales trends.

The analysts upgraded Chipotle' stock to an outperform rating from neutral, and raised their price target on the stock to $40 from $37. Chipotle shares were up 1.6% on Friday.

Restaurant chains have been engaged in a prolonged discount battle to regain customers who were spooked by price increases the industry made to handle rising costs following the pandemic. In February, Chipotle said "consumer trends have been really tough to predict," and its cautious forecast for the year undercut hopes for a restaurant recovery.

Still, the Mizuho analysts said they see slightly-less-bad trends for the chain. They now expect same-store sales to be flat, based on recent checks - up from prior expectations for a 0.4% dip, and better than FactSet consensus forecasts for a 0.9% decrease. That trajectory, they said, gave them a clearer view into Chipotle's margins, and they noted that store traffic had improved as well.

"The return of chicken al pastor was the primary traffic driver, followed by successful promotions and digital growth," the Mizuho analysts wrote.

The analysts said that the current valuation of Chipotle's stock was "overly pessimistic." And they added that other efforts in place at the chain - like new sides and drinks, and a rewards-program relaunch - would also help the stock.

Fast-casual restaurants like Chipotle - which try to offer fast-food service speeds with quality closer to a sit-down restaurant - have been squeezed by competition from restaurants like Olive Garden (DRI) and others that have gotten more aggressive with discount deals.

However, fast-casual rival Cava Group (CAVA) last month pointed to signs that diners were shaking off their reluctance to spend. Fast-food giant McDonald's (MCD) last month said its value meals were bringing customers back, but added that it expects this year to remain difficult for restaurants.

-Bill Peters

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03-20-26 1355ET