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Will Chipotle Break New Records After Posting Earnings?

Posted on Tuesday, October 22nd, 2019 by Chris Markoch

Chipotle Mexican Grill, Inc. (NYSE:CMG) will report third-quarter earnings on October 22. This will be in the middle of one of the busiest weeks of earnings season. Nearly half of the companies in the Dow Jones Industrial Average (DJIA) will be reporting earnings, as well one quarter of the S&P 500.

2019 has already been a stellar year for CMG stock, particularly after the company’s impressive second-quarter results. Not only did the company beat on both the top line and bottom line, but they also saw same-store and digital sales both increased by more than expected.

And the company also increased its guidance for the remainder of 2019. That powered the stock past levels of resistance at $740. The stock price is up 92% to reach a record high of over $850.

Analysts are raising their outlook for Chipotle stock

And, if you believe some analysts, the stock could power past $1,000 per share. The stock got a 1.5% boost on October 18 after analysts from Bank of America upgraded the stock to neutral from underperform. The reasons for the upgrade included a rise in avocado pricing and improved digital platforms that should aid sales. In addition, analysts moved their price target to $850 from $590.

“While we still struggle with the valuation upside, our expectations that Chipotle will deliver near-term earnings-per-share upside to consensus makes a correction in the multiple unlikely, driving our decision to move to neutral,” analysts wrote. “Strong sales momentum and normalizing avocado prices alleviate our near-term EPS concerns.”

Other analysts also increased their outlook. KeyBanc gave CMG an overweight rating with an $870 price target. Wedbush gave the stock an outperform rating with a $980 price target. The analysts firm was upbeat about other ingredients on Chipotle’s shopping list.

 “We view the remainder of the supply chain as largely insulated given the relative size of Chipotle’s protein and produce suppliers,” analysts wrote.

The stock is finding technical support as well

The technical indicators support the stock as well. CMG has recently seen it is stock price consolidate above a key area of support. If that level were to hold, it’s not hard to see the stock moving up 19% from its current level.

 “Chipotle’s been on a tear here for the last couple years,” said Bill Baruch of commodity trading firm Blue Line Futures. “We’ve been consolidating very well out above those 2015 highs in the $750 to $760 area. As long as that holds, I’m buying dips in Chipotle, and I think we could see a move to about $940 to 1,000 on the next leg higher.”

Is Chipotle Stock Too Expensive?

Chipotle has been a comeback story

Four years ago, Chipotle stock was also around the $740 level. However, the issues facing the company would not have had investors seeing a price of $1,000 per share. In fact, $100 might have seemed more likely. As many people know, Chipotle was part of a food-borne illness scandal. For a company that prides itself on producing “food with integrity” the headlines of customers getting sick from eating its food were particularly damaging.

Fortunately, after tumbling almost 40%, CMG stock found support and started to rise again. However, the success was short-lived. Just as the stock seemed ready to move past a level of resistance at around $480, another scandal hit the company. This time, it was a data breach. While the breach affected restaurants in five states, the stock tumbled all the way down to $255. Analysts began to downgrade the stock. The concern was that after surviving the food-borne illness scandal being hit by another scandal would cause a permanent loss of trust with their customers.

Chipotle has changed the narrative 

Millennials and Generation Z make up the core of Chipotle’s business. These customers bought into the quality of the company’s ingredients. But as these customers began to find there were alternatives to Chipotle, the company realized they would have to give customers a reason, beyond ingredients, to visit their chain.

To that end, Chipotle has done extensive work on its digital presence. The company has made it easy for customers to place orders on their mobile device and pick it up at the restaurant or have the food delivered. An interesting discovery for the company is that this digital push has not just driven sales among frequent users. The ability to order via an app has helped attract first-time customers who may find it intimidating to go through all the various menu options with a line of customers waiting behind them.

And the company has also continued to expand its menu options to keep up with customer preferences. In the past year, Chipotle’s menu has expanded to include bacon, tacos, and nachos.


 

Companies Mentioned in This Article

CompanyCurrent
Price
Price
Change
Dividend
Yield
P/E
Ratio
Consensus
Rating
Consensus
Price Target
Chipotle Mexican Grill (CMG)$743.37+1.6%N/A82.05Hold$785.37
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