Chipotle Mexican Grill, Inc. (CMG): Raising Prices all the Way to $641 – Why Not?

Chipotle Mexican Grill, Inc. (NYSE:CMG) could be tastier in the months to come according to Longbow Research. The firm upgraded the stock to a "Buy" from a "Neutral" recommendation.

Along with the new opinion comes a shiny new price-target of $641. Longbow says same-store-sales (SSS) growth and higher prices should offset higher food costs. Have you seen beef, chicken, pork, milk, cheese…

Anecdotally, this author was in Fort Wayne, Indiana for a kids soccer tournament on the weekend and went to the Chipotle on Coliseum Blvd. there must have been 100 people in line – unreal.

Longbow Research is not alone. On Monday, May 5, 2014, Deutsche Bank made the same "Buy" call citing the following reasons, "The stock now trades at 31.4x our 2015 EPS estimate, which we believe is very reasonable considering the company's 1) powerful underlying comp momentum; 2) low-double digit unit growth profile; 3) industry leading margins and unit economics; and 4) debt free balance sheet with a growing cash balance (currently $32.42 per share)." Deutsche Bank says it should add up $560.

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In case you don't know, Chipotle operates fast casual and fresh Mexican food restaurants. Its restaurants primarily offer burritos, tacos, burrito bowls, and salads. As of October 15, 2013, the company operated approximately 1,500 restaurants. We recommend the steak bowl with your favorite flavors on top.

Since Deutsche Bank is making an earnings call, let's look at CMG's recent price-to-earnings (P/E) history to see how likely $560 to $641 is based on 2015's consensus EPS estimate, which is $15.90 per share.

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Since 2009, Chipotle has traded with a P/E range of 21.88 to 62.84 while averaging 41.16. Today, Wall Street is paying 46.76 times earnings, a little above the norm. During the same timeframe, the bottom line grew and average of 25.5%, which means investors have been willing to pay a premium above earnings growth. In 2015, EPS are slated to increase by 27.2%, pretty much in-line with the last half decade.

At the average, five-year P/E, CMG would price out at $654 using 2015's consensus EPS estimates. That number is closer to Longbow's target than Deutsche Bank's $560. At $560, would pay 35.22 times earnings, which is about as low a P/E the stock had since October 2012.  Prior to 10/12, CMG didn't trade with a P/E below since September 2010.

Overall: Chipotle Mexican Grill, Inc. (NYSE:CMG) has a strong chance to hit both Deutsche Bank's and Longbow Research's price-targets using 2015's consensus EPS estimate and the average P/E for the last five years.