Chipotle Mexican Grill Stock (NYSE: CMG), a fast-casual restaurant chain that focuses on fresh and organic ingredients in burritos, salads and more, is scheduled to report its fiscal third quarter results on Thursday, Oct. 26. We expect CMG stock to trade higher following third-quarter results that beat expectations for revenue and earnings. Chipotle’s growth is slowing, but still, its profitability remains good – thanks to increased prices. The company’s management highlighted that it saw higher costs across the board in the second quarter, particularly in beef, tortillas, dairy, salsa beans and rice. That said, the company’s balance sheet remains strong at $1.8 billion in cash, restricted cash and investments, with no debt. It opened 47 new restaurants in the second quarter, 40 of which were Chipotlane (drive-thru) and is on track to open 255 to 285 new restaurants this year, with at least 80% of its restaurants including Chipotlane. CMG’s positive performance so far can be attributed to restaurant-level operating margin expansion, menu innovation, price increases and good execution of the company’s digital strategies.
Going forward, Chipotle expects comps in the low to mid-single-digit range in the coming third quarter driven by transaction growth. It continues to forecast full-year comps in the mid to high single-digit range. For the third quarter, CMG expects cost of sales to be down about 30% due to higher beef and avocado prices. CMG’s supply chain team is diversifying its avocado exposure, and in the third quarter, the majority of avocados are expected to come from Peru. While prices remain above very favorable levels in the second quarter, the company is still less affected by the volatility in the Mexican avocado market.
CMG stock has shown a strong gain of 30% from the $1385 level in early January 2021 to its current level, compared to a gain of about 10% for the S&P 500 over this nearly 3-year period. However, the rise in CMG stock has not been consistent. Returns for the stock were 26% in 2021, -21% in 2022, and 31% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 10% in 2023 – which suggests that CMG underperforms S&P In 2022. In fact, Consistently beating the S&P 500 Individual stocks have had it tough in recent years – in good times and bad; To giants in the consumer discretionary sector including AMZN, TSLA and HD, and even to megacap stars GOOG, MSFT and AAPL. In contrast, the Trefis High Quality Portfolio is a collection of 30 stocks. Outperformed the S&P 500 every year At the same time. Why so? As a group, HQ Portfolio stocks provided better returns with less risk than the benchmark index; Clearly less of a roller-coaster ride in HQ portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and high interest rates, could CMG face a similar situation in 2022 and S&P’s performance is poor Over the next 12 months – or will we see a huge surge?
Our forecast indicates Chipotle’s valuation at $2117 per share, which is approximately 15% above the current market price. View our interactive dashboard analysis Chipotle Earnings Preview: What to expect in the third quarter? for more information.
(1) Revenue is expected to rise above consensus estimates
Trefis estimates Chipotle’s Q3 2023 revenue will be about $2.5 billion, slightly ahead of consensus estimates. Chipotle saw a 14% year-over-year increase in revenue in the second quarter to $2.5 billion, as comp sales rose 7.4% with transaction growth over 4%. For the full year of 2023, we forecast Chipotle’s revenue To be $9.8 billion, an increase of 14% year-on-year.
The company’s management believes there could one day be 7,000 Chipotle locations in North America, up from about 3,100 so far. Additionally, there are only 28 Chipotle restaurants in Canada, and the potential for expansion is significant. There are also 12 restaurants in the UK, as well as some takeout-only restaurants in France and Germany. If its concept is successful with other cultures the expansion will likely continue for a long time.
(2) EPS is also likely to beat consensus estimates
Chipotle’s Q3 2023 earnings per share are expected to come in at $11.02, per Trefis analysis, slightly above the consensus estimate. In Q2, Chipotle’s restaurant-level margin of 27.5% increased nearly 230 basis points compared to last year. This helped adjusted diluted earnings per share grow 36% year over year to $12.65 over the same period. There were unusual expenses in the second quarter related to corporate restructuring and corporate and restaurant asset impairments, including the closure of a pizzeria locale. It should be noted that Chipotle’s highest-margin sales are digital orders, so momentum on this front serves the business well for continued profit growth in the long run.
(3) The stock price estimate is higher than the current market price
going by us chipotle valuation, With an EPS estimate of around $44.45 in FY2023 and a P/E multiple of 47.6x, this translates to a price of $2117, which is 15% above the current market price. He said, at present the company’s shares appear cheap. Chipotle’s sharp valuation outweighs the 27x P/E ratio for other popular restaurant stocks like McDonald’s (NYSE: MCD) and 29x for Starbucks (NASDAQ: SBUX).
It’s helpful to see how its counterparts fare. CMG Peers shows how Chipotle’s stock compares to peers on the metrics that matter. You’ll find other useful comparisons for companies in different industries on Peer Comparisons.
invest with trefis Market Beating Portfolio
see all trefis price estimate