Chipotle named favorite restaurant stock

Goldman Sachs has high hopes for the future of Chipotle, anticipating its digital sales to drive the company's growth.

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The firm added Chipotle to its conviction buy list and initiated coverage of the fast-casual restaurant chain with a "buy" rating and a $1,000 price target. It also predicts its stock will surge another 28 percent.

Goldman analysts said that now is a critical time for restaurant stocks since they have been outperforming the S&P 500 for the last year. Particularly, Goldman analysts say its the potential of Chipotle's digital sales that makes the restaurant their top pick.

"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.

Chipotle's stock has climbed more than 80 percent just this year, after the business recovered from a series of E. coli outbreaks that were tied to some of the food chain's items in 2015.

The company also reported having better-than-expected quarterly earnings last week, with digital sales rising by 99.1 percent. Digital sales represented nearly 18.2 percent of the quarter's sales. Goldman anticipates the chain's same-store sales to grow as well.

TickerSecurityLastChangeChange %
CMGCHIPOTLE MEXICAN GRILL INC.819.34+9.94+1.23%

Chipotle shares rose more than 3 percent on Monday.

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In addition to Chipotle, Goldman also initiated coverage of 10 other restaurant stocks. It also has buy ratings for McDonald's, Starbucks, Shake Shack and Wingstop Restaurants. The firm released "neutral" ratings for Dunkin' Brands, Domino's Pizza, Restaurant Brands International and Yum! Brands.