Mackenzie Tatananni

Chipotle Mexican Grill may face a sluggish few months ahead, but many of the restaurant chain's strengths are "set to continue" in 2025, Morgan Stanley analysts said Monday as they upgraded the stock and boosted their price target.

Analysts led by Brian Harbour upgraded shares of the Mexican-inspired restaurant chain to Overweight from Equal Weight, and raised their price target to $70 from $65. The stock was up 2.7% to $55.45 on Monday, with the new price target suggesting a potential upside of 26%.

After a sedate start to 2025, Chipotle is positioned to see gains later into the year, Harbour argued. "As the stock has continued to fade on weak sales data and growth stock pressures, an opportunity to step in has presented itself if one thinks these are short-term headwinds," he wrote.

While the first and second quarters of 2025 may not inspire confidence, Harbour thinks the company's drivers of product and marketing should deliver a decent year.

"Since mid-2024, upward estimate revisions have been lacking mainly due to portion investments, some food-cost pressures, and moderating sales that have been more aligned with expectations," the analyst wrote, adding that the margin pressures should dissipate by mid-2025.

In Harbour's view, Chipotle is an "excellent tech play" -- an unusual description for a company best known for its burrito bowls.

While other restaurant chains such as Sweetgreen and Domino's Pizza stand out for their stance on automation or their success in scaling technology, Chipotle is "probably the best combination of an on-trend brand, existing scale, and incremental tech bets," Harbour wrote.

When combined, these elements could drive margin or offset inflation, "which in turn protects the ability to underprice consumers," Harbour said.

Another bright point: The company's "enviable" balance sheet, which gives it options with regard to existing store investment, tech spend, and return of capital. Harbour pointed to Chipotle's $750 million cash balance, lack of debt, and $1.5 billion of free cash flow as of just last year.

The stock's pricey multiple -- 25 times 2025 earnings and 28 times earnings before interest, taxes, depreciation, and amortization -- has given Morgan Stanley some pause, but Harbour believes it can be defended on a growth-adjusted basis.

In his view, Chipotle is a "quality large-cap-growth compounder," with a buying opportunity rearing its head as the stock is about flat to 12 months ago. "We'll bite," Harbour added.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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March 03, 2025 11:17 ET (16:17 GMT)

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