Here’s Why Chipotle Stock Is Soaring (It’s All About Higher Prices—And Avocados)

Food & Drink

Topline

Shares of Chipotle surged Wednesday to their highest price ever following an eye-popping earnings report for the restaurant, as the burrito peddler joins the likes of the world’s largest fast-food chain in relishing profits after passing inflationary costs onto consumers.

Key Facts

Chipotle brought in $2.4 billion in sales and $292 million in profit over the first three months of 2023, both record numbers for the firm.

Its stock accordingly jumped as much as 15% in early trading to $2,046, surpassing a September 2021 all-time high of about $1,960 and tacking on some $7 billion in market value.

Chipotle’s hot start to the year comes even as the chain raised menu prices by 10% year over year.

In its Tuesday afternoon earnings release, Chipotle listed one main reason behind its ability to up its operating margins by nearly 25% over the past year that’s near and dear to the chain aficionados’ hearts: Avocados.

The average price of a Hass avocado dwindled more than 50% from $2.49 in October 2022 to $1.16 last week, according to U.S. Department of Agriculture data.

In a Wednesday note to clients, Bank of America analysts led by Sara Senatore upped their price target for Chipotle to $2,200, implying 8% upside even after the stock’s Wednesday rally.

Key Background

McDonald’s, the world’s biggest restaurant chain by market capitalization, reported similarly bumper earnings in its Tuesday earnings report, posting $5.9 billion in sales and $1.9 billion in profit, topping analyst expectations. McDonald’s similarly benefited from a 10% hike in menu prices while wholesale prices for crucial food items dwindled; ground beef and bacon prices were down 1% and 5% apiece between March 2022 and March 2023, according to Labor Department data. Consumer prices are up about 15% in the U.S. over the last two years as inflation hovers far above historic levels.

Surprising Fact

Chipotle was the only public U.S. restaurant chain where quarterly same-store sales grew during 2008 and 2009 amid the financial crisis, according to research from Bernstein analyst Danilo Gargiulo, some fortunate history for Chipotle as the U.S. likely tips toward another recession.

What To Watch For

Domino’s is the next fast-food giant that will report earnings, sharing them Thursday morning, while reports from Starbucks, Wendy’s, Taco Bell parent Yum Brands and Pizza Hut will come next week.

Further Reading

Food Prices Soar, and So Do Companies’ Profits (New York Times)

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