Chipotle's stock price hike just another catalyst for the company

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Chipotle's stock price hike just another catalyst for the company

When it is all said and done, the recent price increase by Chipotle will probably be just another catalyst for the stock prices.

The burrito and salad bowl joint disclosed Tuesday that it is had recently raised menu prices by 4% to compensate for higher labor costs, fueled in large part by worker shortages sweeping across the country. It's an issue that Chipotle has chosen to address by raising the average hourly wage for workers to $15 an hour, explained Chris Kim on Yahoo Finance Live.

I can pass that through. In all my years, I feel like it feels like the right thing at the right time, Daniel Hartung told analysts at a Chipotle conference.

Despite the recent menu price increase, however, Chipotle isn't showing any signs of losing customers upset with having to pay more for a burrito or salad bowl. Actually it's quite the contrary. With people becoming more mobile after getting their COVID 19 vaccinations, they are packing Chipotle locations for lunch and dinner.

We see people coming back to the dining rooms, Niccol told Yahoo Finance Live. It's great to see the line backward. It is great to see the people back in the restaurant. Niccol added that digital sales have remained strong.

What is the pricing power amidst strong demand is likely to be a tailwind to Chipotle’s earnings this year, even when considering higher labour costs. No small coincidence that on Tuesday in the last month the stock price of Chipotle rose 1% on the menu hike news, adding to a 30% gain over the past year.

Meanwhile, Wall Street generally agrees that Chipotle has several other catalysts in place to support a richer valuation.

The three cited by analysts based on Yahoo Finance's read are Chipotle's shift to drive-thrus, menu innovation and an impressive cash position. Chipotle plans to introduce more than 200 new restaurants in 2016 and build off the latest successful introduction of quesadillas by debuting new menu items.

We remain optimistic on the unit development this year and believe that chipotlane conversions could allow the company to operate as many as 1,000 drive-thru locations by 2025. We see conversion potential as an under-appreciated aspect of the story that should build in the coming years: strong near term momentum, developing sales drivers and long-term positioning keep us positive on shares and lead to our higher price target, wrote BTIG restaurant analyst Peter Saleh in a research note to clients.

Saleh reiterated his buy rating on Chipotle with a $1,725 price target.

The $14 billion total liquidity at John Ivankoe notes is an enviable position to have, according to J.P. Morgan Restaurant analyst Chipotle.

Ivankoe has a neutral rating on Chipotle with a $1,460 price target.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter and LinkedIn.

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