Despite Covid and Other Headwinds: Keybanc, Chipotle is set for 2022 and is expected to return

Despite Covid and Other Headwinds: Keybanc, Chipotle is set for 2022 and is expected to return ...

Keybanc's analysts are cautious in preparing to make their restaurant plans for 2022, despite having a look at the forecasts.

The stock of Chipotle () - which the investment bank rates as overweight, is still one of the aims of the company for the year.

Eric Gonzalez, an analyst for Keybanc, matches the overweight rating with a $1,850 price target, which represents 30% upside from the stock's previous closing price of $1,420.

Restaurants in 2022 are expected to be "far from perfect," according to the investment company owing to a surge in Covid-19 infections, cost inflation, multiyear comparisons and limited earnings visibility.

"We consider the lack of performance in the industry since the start of the year as an opportunity to get more constructive on select high-quality names," said the entrepreneur.

Restaurant stocks remained low in terms of market capitalization, owing to a 20 percent increase, compared to a 27% increase in the S&P 500.

According to Keybanc, a group that has risen between in-line to better than the index in the past decade is having a sagging negative flaw.

Keybanc's Bullish Outlook on Chipotle

On September 23, Chipotle and the Newport Beach, Calif., burrito chain had a rough end, falling about 30%.

TheStreet Recommandations

Keybanc considers it a lot of time to run for the chain, which it calls a "best-in-class fast-casual restaurant."

Given its favorable customer demographics (e.g., high income) that should assist China in protecting margins from rising costs, Gonzalez said, Chipotle has impressive growth prospects in the cross-tier andaccelerating unit growth.

Chipotle, along with its other two top picks, Papa John's () and Dine Brands () - can distinguish itself from the competition by making menu innovation and advertising, has outsized check growth due to price rises, and is speeding up new restaurant openings.

Tough Comparisons Are Possible in 2021

In the second half, commodity prices have risen to their lowest level of zero, but key sources have still remained.

Keybanc predicts Chipotle to have a mid-single-digit commodity inflation that will worsen in the near future.

Combined with lower unemployment and increased employee availability, workers are reintroduced into the workforce.

In November, the average hourly wage rate increased to 16% and 15% in full-service and limited-service restaurants.

According to Keybanc, some restaurant executives prefer to remain elevated with the reduction in labor prices, but wage rate inflation is unlikely to continue at its current rate much longer.

Chipotle's stock fell 2% to $1,391 a share at the end of the year.

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