Irene Jiang / Business Insider
- Goldman Sachs initiated coverage of 11 restaurant stocks including Chipotle, which it gave a "buy" rating and $1,000 price target.
- Chipotle rose nearly 3% on the news.
- Goldman analysts wrote that now is a critical time for restaurant stocks, which have outperformed the S&P 500 in the last 12 months.
- Watch Chipotle trade live on Markets Insider.
Chipotle is Goldman Sachs' favorite fast-food restaurant.
The firm initiated coverage of the chain Monday with a "buy" rating and a $1,000 price target, predicting that the stock will surge another 28%.
Goldman sees digital sales driving the stock's upward trajectory.
"By flexing their digital muscle and migrating customers to this channel, the company is able to grow capacity in the stores well beyond prior "peak" in 2014 as well as grow frequency and spend potential," wrote a group of analysts led by Katherine Fogertey. They described Chipotle as their "top idea" in the restaurant industry.
Their bullish view on Chipotle is slightly out of consensus. Beyond initiating coverage with the highest price target on the Street, Goldman thinks that Chipotle could grow same-store sales more than 10% in 2019, above consensus estimates of 8.8%. In addition, Goldman sees positive upside in Chipotle's menu innovation and a digital-focused remodel.
Shares of Chipotle gained nearly 3% on the news. This year, the stock has surged 80% and has fully recovered from the downward spiral that began in late-2015 when an E. coli outbreak was first linked to the chain's food.
Now is a critical time for restaurant stocks, the analysts wrote. Limited-service restaurants and franchisees - over store owners - are well positioned in the current economic climate to perform well against market volatility.
"Restaurants is a rare sector in the market that doesn't yet face Amazon encroachment - digital is helping to drive growth and profits," the analysts wrote.
Fast-casual restaurant stocks have on average outperformed the S&P 500 by 13% over the last 12 months. In the restaurants space, the strongest performance has been seen in quick service and fast casual restaurant stocks, which has outperformed the S&P by 14% this year and 27% over the last 12 months.
Goldman also initiated coverage of 10 other restaurant stocks, and has buy ratings on McDonald's, Starbucks, Shake Shack, and Wingstop Restaurants. The bullish ratings on Wingstop and Shake Shack are also out of consensus, but the analysts wrote that they see both brands in the early days of expansion, with the potential to grow substantially over time.
Goldman initiated coverage and "neutral" ratings on Dunkin' Brands, Domino's Pizza, Restaurant Brands International, and Yum! Brands. It has "sell" ratings on Jack in the Box and Wendy's.
