Covid – and more recently the omicron variant – has played havoc with many industries, not least the restaurant business.
Following comments made recently by both McDonald’s and Starbucks regarding the impact the variant had on business in December and January, BTIG 5-star analyst Peter Saleh thinks it is only natural to keep a lid on expectations ahead of Chipotle’s (CMG) 4Q21 earnings today.
Coupled with “persistent” inflation, the analyst sees omicron-related costs dampening Q4’s display and most likely also impacting 1Q22. Furthermore, as labor shortages related to Covid isolation likely put a cap on operating hours, the analyst anticipates that same-store sales upside “could be limited in the near term.”
Accordingly, Saleh has reduced his Q4 EPS forecast from $5.42 to $5.19, and lowered the restaurant-level margin estimate from 20.8% to 20.4%. This corresponds to the low end of the fast-casual restaurant chain’s 20%-21% guidance range.
There’s a similar revision for the Q1 forecast; Saleh now sees EPS coming in at $6.50 compared to $6.86 before, amounting to a restaurant-level margin of 22.4%, lowered from the initial estimate of 23.5%.
“That said,” the analyst went on to somewhat reassure, “We believe the long-term story remains very much intact and expect the company to accelerate unit development in 2022 with more drive-thru (Chipotlane) locations.”
Saleh expects management to provide more clarity regarding these developments on the earnings call. The analyst expects unit development will cross the 200-restaurant threshold this year. Just as vital will be the company’s “commitment” to Chipotlanes, which Saleh anticipates will account for at least ~75% of unit openings this year.
Finally, Saleh believes menu pricing will be a “key lever” in 2022, and to prop up margins, thinks it would be no shocker to see Chipotle raise prices further.
So, where does this all leave investors? Saleh sticks to a Buy rating, although following in the wake of the estimate revisions, there’s also a reduction to the price target. The figure drops from $2,150 to $1,975, and now suggests shares will climb ~36% in the year ahead. (To watch Saleh’s track record, click here)
Saleh’s price objective is virtually in-line with the Street’s overall target. On the ratings front, most analysts remain firmly in Chipotle’s corner; the stock’s Strong Buy consensus rating is based on 15 Buys vs. 3 Holds. (See CMG stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
