Earnings Preview: Chipotle Mexican Grill (CMG) - Positive Analysts Ratings
By:NewsyStocks   Wednesday, February 01, 2022 10:21 AM

Chipotle Mexican Grill (CMG) is scheduled to release its fourth quarter earnings today. For the quarter, we expect EPS of $1.91 and revenue of $594.2 million as against consensus expectation of $1.82 per share in earnings on revenue of $589.7 million.

The company remains well positioned to capture excess demand through productivity growth and price increases.  A 4.5 percent pricing increase and 5.7 percent transaction growth should result in another quarter of 10 percent+ same-store sales growth. The recent price hike, completed in August, positions the company for 27 percent+ unit-level EBITDA margins in 2012 if commodity cost inflation eases.  Management at Chipotle Mexican Grill also advised investors that room for further pricing increases also exists, particularly on the West Coast.

However, commodities costs are expected to constrain earnings growth, as F&B costs are expected to rise due to higher meat, corn, and rice costs, partially offset by some relief in avocados. Incremental marketing expense of approximately $4 million could weigh in on margins.

Third Quarter Results & Earnings History

The company reported revenue of $591.9 million representing an increase of 24.1 percent year-over-year. The growth in revenue was the result of new openings not present in the comparable base along with an 11.3 percent growth in comparable restaurant sales.

Profit for the third quarter of 2011 was $60.4 million, or $1.90 per diluted share, compared to $48.2 million, or $1.52 per diluted share, in the year-ago quarter. Restaurant level operating margin was 26.7 percent, a decrease of 100 bp from the prior-year period and primarily driven by food cost inflation but partially offset by leverage from higher restaurant sales. G&A costs were 6.3 percent of revenue, declining 70 basis points from the prior-year period.  

During the quarter Chipotle Mexican Grill saw 32 new restaurants being opened including the new ShopHouse Southeast Asian Kitchen, bringing its total restaurant count to 1,163.

The company reported EPS of $1.59 in 2Q and $1.46 in 1Q of 2011 on revenue of $571.6 million and $509.4 million respectively.

Our Take

Wedbush Securities has an Outperform rating on the company with a price target of $400 which is based on a 1.2x PEG multiple on their 2012 EPS growth estimate, in line with Chipotle's growth peer group.

Goldman Sachs recently added CMG to America's conviction list with a Buy rating.

Deutsche Bank also raised its rating and price target on CMG to Buy from Hold and to $390 from $320 respectively. As for the fast-food industry, comparable store sales trends were stronger than expected across the restaurant space, particularly in December.  We believe continued outperformance in already industry-leading same-store sales growth combined with mid-teens unit growth, renders the valuation premium justifiable. Competitor Mc Donald's (MCD) posted strong quarterly earnings in its recent release and investors will be looking for Chipotle Mexican Grill to follow suit.