Chipotle Mexican Grill (ticker: CMG), known for its popular burrito chain, is venturing outside the U.S. market with the announcement of its first franchised restaurants. The company has partnered with franchise group Alshaya Group to open its initial locations in Kuwait and Dubai next year, joining other American eateries and retailers already established abroad.
While Chipotle has a small presence in Canada and Europe, the majority of its locations are currently in the domestic market. However, industry analysts believe that international franchise expansion could greatly benefit the company’s growth potential. According to TD Cowen analyst Andrew Charles, Chipotle’s simple operating model makes it an excellent candidate for such expansion. By utilizing a franchise model, the brand can pursue asset-light development opportunities and accelerate its growth rate.
Although owning and operating its own restaurants has given Chipotle control over its brand and business, many successful chains eventually adopt a franchise model to generate consistent royalties without the need for heavy investment. As an example, the majority of McDonald’s restaurants are franchised.
Raymond James analyst Brian Vaccaro emphasizes that while it will take time for international franchises to contribute significantly to Chipotle’s bottom line, this expansion is expected to play a crucial role in the company’s long-term unit growth potential. Nonetheless, Chipotle’s primary driver of shareholder returns will continue to be its expanding footprint within the United States for the foreseeable future.
Chipotle’s Potential for Growth and Optimistic Analysts
Wells Fargo analyst Zachary Fadem has raised the price target for Chipotle to $2,400 from $2,050. According to Fadem’s calculations, each 100 franchised stores could bring in $15 million in annualized revenue, equivalent to 36 cents in earnings per share. While this may seem modest compared to the previous year’s earnings per share of nearly $33, Fadem believes that Chipotle’s international expansion presents a significant opportunity, making it one of the leading players in its category.
Despite this focus on international growth, Chipotle’s domestic business continues to generate optimism among analysts. According to FactSet, 70% of analysts tracking the company have a buy rating or its equivalent on the shares. Additionally, earnings per share estimates for the second quarter have been steadily increasing over the past three months. The current consensus predicts Chipotle to deliver earnings per share of $12.28 on revenue of $2.53 billion when it reports on July 26.
Truist analyst Jake Bartlett also displayed optimism by raising his same-store sales growth estimate for the second quarter to 7%. Although this figure falls slightly below the average analyst estimate of 7.5%, Bartlett maintained a buy rating on the shares and increased his price target to $2,310 from $2,270.
Similarly, Gordon Haskett analyst Jeff Farmer forecasts a strong 8% same-store sales growth for the quarter. Farmer praised Chipotle for surpassing its peers in terms of growth, digital penetration, and margin expansion.
Notably, Chief Executive Brian Niccol was recently recognized as one of the best CEOs. Chipotle’s shares have experienced a significant increase of more than 54% this year and were valued at $2,143 with a 0.7% increase on Tuesday.
