JPMorgan analysts said that with the U.S. set to be open again on Independence Day, restaurants are poised to benefit from a pent-up desire to dine out, which has been restricted because of the COVID-19 pandemic.
“Despite a full year later than earlier expectations, we still believe July 4 to represent the reopening of America,” analysts wrote in a note focused on the restaurant industry published Monday.
JPMorgan based its reopening day forecast on the progress the country has made so far in beating back the pandemic.
“With ~40% of Americans having at least one vaccine shot and given ~3 million shots administered per day, herd immunity can be expected as early as June,” the report said.
Herd immunity happens when 50% to 90% of the population becomes immune to the virus. Health professionals have said that a vaccination rate of 70% to 80% could bring the nation close to herd immunity.
However, Dr. Anthony Fauci, President Biden’s chief medical adviser, advised during the White House press briefing on Monday that it’s best to focus on getting as many people vaccinated as quickly as possible rather than any particular number.
JPMorgan analysts noted that restaurant seating capacity in major locations range from 25% in California, to 50% in New York City, and 50% in Pennsylvania and Illinois. Florida and Texas are “are now largely back to previous capacity.”
The analysts highlighted sales in March, which were down just 4% from 2019, and sales during the first week in April, which were up 1% compared with the same period in 2019.
“Unprecedented stimulus and lack of consumer spending alternatives have led to a major $2.5 trillion-plus increase in savings and what we believe is major pent-up demand to ‘get out and gather,’” analysts wrote.
Analysts see room for 6,000 Chipotle locations in the U.S. with 25% margins and sales of $20 billion, and forecast $2.5 billion in sales at 850 Shake Shack locations, plus 1,200 licensed locations in the U.S. and abroad.
JPMorgan, which rates Chipotle stock neutral with a December 2022 price target of $1,460, isn’t the only research group to take an upbeat perspective on Chipotle.
Raymond James analysts upgraded Chipotle to outperform from market perform in a Monday note, setting a price target of $1,800.
“We believe the company’s sales have fully participated in strengthening industry trends over the last four weeks, likely pushing recent average weekly sales (AWS) in excess of $50,000,” analysts led by Brian Vaccaro wrote.
And UBS analysts say two-year same-restaurant sales momentum will be supported by enhancements in areas like menu innovation and digital.
“Sizable expectations surrounded the lead up to quesadilla launch, and UBS Evidence Lab app data shows an increase in download share beg. around launch date (digital only) and through at least the week of 3/22,” UBS said.
“We view Chipotle as one of the most resilient QSRs [quick-service restaurants] to COVID impacts, but could also see benefit from reopenings & increased mobility.”
UBS rates Chipotle stock neutral with a $1,575 price target.
Chipotle stock has gained 11% for the year to date and has more than doubled, up 106.9%, over the past year.
The benchmark S&P 500 index
is up 9.9% for 2021 so far.