Chicago, IL – October 25, 2024 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Chipotle Mexican Grill, Inc. CMG, Domino's Pizza, Inc. DPZ and Yum! Brands, Inc. YUM.
Here are highlights from Thursday’s Analyst Blog:
To Buy or Not To Buy: Chipotle Ahead of Q3 Earnings
Chipotle Mexican Grill, Inc. is scheduled to report third-quarter 2024 results on Oct. 29, 2024, after the closing bell.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
In the second quarter of 2024, CMG reported stellar performance, with earnings per share (EPS) beating the Zacks Consensus Estimate by 9.7% and revenues surpassing the same by 1.3%. Year over year, adjusted EPS and revenues rose 36% and 18.2%, respectively. Successful promotions regarding Chicken Al Pastor drove significant engagement and sales in the quarter.
CMG has an impressive track record of surpassing earnings expectations, exceeding the consensus mark in each of the trailing four quarters. The average surprise over this period is 9.9%.
Trend in CMG’s Estimate Revision
The Zacks Consensus Estimate for earnings in the third quarter is pegged at 25 cents per share, indicating an improvement of 8.7% from 23 cents reported in the year-ago quarter. The consensus mark has increased 4.2% in the past 60 days.
For quarterly revenues, the consensus mark is pegged at nearly $2.82 billion, suggesting an increase of 13.9% from the year-ago quarter’s figure.
What Our Model Unveils for CMG
Our proven model predicts a likely earnings beat for Chipotle this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.
Earnings ESP: Chipotle has an Earnings ESP of +7.55%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company carries a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Shaping Chipotle’s Q3 Performance
Chipotle's third-quarter top line is expected to increase year over year, courtesy of its digital initiatives, Chipotlane add-ons and new restaurant openings. This and the focus on operations, including throughput, as well as terrific marketing and menu innovation, are likely to have strengthened the value proposition, paving a path for increased customer frequency and engagement in the to-be-reported quarter.
Our model predicts third-quarter food and beverage revenues to increase 13.9% year over year to $2.8 billion. Delivery service revenues are expected to be $18.1 million, suggesting an increase of 13.5% year over year.
Chipotle has taken proactive steps to address customer concerns about portion sizes. By focusing on consistency and training across its restaurants, Chipotle has reinforced its commitment to offering generous portions. This effort has already yielded positive results, supported by improved consumer scores.
Higher transactions, increased average checks and new restaurant openings are likely to have driven comps growth in the to-be-reported quarter. Our model predicts third-quarter comps growth to be at 6.5% year over year.
Elevated costs concerning avocados and wage pressures are likely to have hurt margins in the third quarter. CMG anticipates the cost of sales to be approximately 31% in the third quarter, while labor costs are expected to be in the low 25% range. Other operating costs are expected to be in the high 13% range, owing to higher seasonal expenses like utilities and maintenance and repair.
Our model predicts food, beverage and packaging costs to be $864.1 million, up 17.7% year over year. Per the model, labor costs are expected to increase 15.4% year over year to $711.2 million. Our model predicts a restaurant-level margin of 25.4%.
Price Performance & Valuation
Shares of Chipotle have gained 29% in the year-to-date period, outperforming the Zacks Retail – Restaurants industry and the S&P 500. CMG has also outpaced other industry players likeDomino's Pizza, Inc., up 2.5%, and Yum! Brands, Inc., up 2.6% in the same time frame.
The uptick in share price was primarily backed by the company’s digital efforts, Chipotlane add-ons and marketing initiatives. This, along with strength in digital sales and new restaurant openings, has been driving the company.
CMG’s YTD Performance
From a valuation perspective, CMG is trading at a premium. The company has a forward 12-month price-to-earnings of 47.27X, significantly above the industry average.
Investment Considerations
Chipotle’s robust operational performance, focus on digital innovation, and strategic expansion plans make it an attractive investment opportunity. The company continues to enhance its operations by focusing on improving service speed and throughput, alongside expanding its presence both domestically and internationally. With a growing number of new restaurant openings featuring Chipotlanes, Chipotle is well-positioned to capture more market share. Its digital transformation has been a significant driver, with digital sales accounting for a large portion of overall sales, demonstrating the success of its app, loyalty program, and delivery partnerships.
Chipotle’s long-term growth strategy revolves around five key pillars: improving operations, enhancing guest engagement, leveraging technology, and expanding access through new locations. The company has been addressing concerns over portion sizes by standardizing serving consistency across all restaurants. Additionally, Chipotle is testing innovative technologies like dual-sided grills and automated digital makelines designed to streamline operations further.
With its commitment to internal talent development and plans to expand to 7,000 locations across North America, Chipotle remains focused on both operational excellence and significant long-term growth potential.
Conclusion
Given Chipotle’s strong operational performance, ongoing digital innovations, and strategic expansion plans, the stock remains a solid investment for the long term. However, with the company’s shares already up significantly year to date and trading at a premium valuation compared to the industry, now may not be the best time for fresh buying. Investors may want to wait for a more favorable entry point, especially considering potential cost pressures and elevated expenses in the near term.
That said, Chipotle’s proven ability to drive growth through new initiatives and consistent earnings beats makes it a stock worth holding for existing shareholders. The upcoming third-quarter results could further reinforce its strong market position, but for new investors, it would be prudent to adopt a wait-and-see approach before making fresh purchases.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
https://www.zacks.com
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
