Chipotle stock has rallied more than 72% in 2019
Chipotle Mexican Grill Inc. is scheduled to report second-quarter earnings after the closing bell on Tuesday and while analysts are bullish about this quarter, they’re starting to question just how long Chipotle’s hot streak will last.
Chipotle CMG, -0.54% stock is up 72% for 2019 so far after a yearslong struggle to recover from illness outbreaks in 2015. Chipotle stock closed at an all-time high of $764.04 on July 18, beating the previous all-time high reached just a couple of days earlier, on July 16.
“The way we see the shares here is that the debate about whether the brand can recover from food safety issues in an environment of increased competition is over, and the stock performance now turns on the whether the rate of recovery can exceed expectations currently factored into estimates and valuation,” wrote John Zolidis, president of Quo Vadis Capital.
“[T]he company will soon start lapping its own improvements and one-time structural changes such as closing underperforming locations. On balance, our belief is that investors will start to anticipate a reduced rate of growth and improvement, likely leading to churn in the shares and contraction in the multiple and thus making the shares unattractive at current levels.”
Meanwhile, UBS analysts led by Dennis Geiger think the company’s fundamentals were strong during the quarter, but say investors will want same-store sales growth to exceed 9%. The FactSet consensus is for 8.2% growth.
UBS rates Chipotle stock sell with a $600 price target.
Chipotle has an average stock rating of hold with an average target price of $705.43, according to 34 analysts polled by FactSet.
Here are other things to look out for:
Earnings: FactSet expects earnings per share of $3.74, up from $2.87 last year.
Chipotle has beaten FactSet’s expectations the last six quarters.
Estimize, which crowdsources estimates from analysts, fund managers and academics, expects EPS of $3.76.
Revenue: FactSet and Estimize are guiding for revenue of $1.41 billion, up from $1.27 billion last year.
Chipotle has beaten FactSet’s revenue expectations the last two quarters.
Stock price: Chipotle shares have gained nearly 6% over the past three months, outpacing both the S&P 500 index SPX, +0.28% , which is up 2.7%, and the Dow Jones Industrial Average DJIA, +0.07% , up 2.5%.
Besides the illness issues, Chipotle stumbled out the gate with the launch of queso. However, the UBS Evidence Lab QSR survey found that Chipotle’s brand perception has grown versus the competition on a year-over-year basis. This is particularly notable for the improved perception of food quality and new menu items.
Among the items that have appeared on the Chipotle menu over the past year are bacon, tacos and nachos.
Wedbush analysts maintained their neutral stock rating but moved their price target to $750 from $700 based on growth expectations for same-store sales and margins.
“We view the growth in digital, supported by the rollout of loyalty, menu innovation, and marketing spend as primary drivers of mid-to-high single-digit same-store sales growth in 2019,” analysts wrote in a note published Thursday.
“We continue to expect the growth in digital and incremental benefits from in-app and third0party orders to potentially drive >20% incremental margins through 2019.”
-Digital growth is giving the company a boost
JPMorgan analysts also raised their price target to $650 from $600 in their most recent note that looks at the restaurant industry for the second half of 2019.
Analysts maintained their neutral stock rating.
“Comp momentum is driven by improved marketing/awareness and growth in digital, which is now 15.7% of sales versus 8.8% last year,” analysts said.
Delivery and the new loyalty program, which launched in March, are also giving the company a bump.