Over the past few years, shares of Chipotle Mexican Grill (CMG) have been on an almost constant upward trajectory. With the stock likely sitting at or very near another all-time high, the company will step up to the earnings plate next week (Tuesday, July 20) to deliver Q2’s financials. Looking ahead to the report, Baird’s David Tarantino expects the fast-casual restaurant chain to hit the nail on the head.
“We see potential for Q2 results to meet or possibly exceed estimates/guidance,” the 5-star analyst said, “And we continue to believe CMG is well positioned to sustain positive operating momentum in 2H21/2022.”
The Street is expecting EPS of $6.53 but Tarantino is calling for $6.71 on comps of 32.0% vs. consensus at 29.9%. The company’s guidance had high 20% to 30%. Tarantino is expecting restaurant-level margin of 23.9% compared to 12.2% in 2Q20 and 20.9% in 2Q19, which is virtually in-line with Chipotle’s guidance of 24% and slightly higher than the Street’s 23.7% forecast.
Looking ahead, the analyst believes the “near-term setup” appears favorable, expecting same-store sales in Q3 and Q4 to be up by 11.5% and 9.5%, respectively. However, should the digital business “remain sticky” and post-pandemic lunchtime routines “further normalize,” the analyst believes healthy upside could be on the menu.
Recent comments made by Chipotle management suggested the company is looking to accelerate the speed of unit growth in the upcoming years, from the 7% growth it is expecting in 2021.
As such, it is further ahead, in 2022 and beyond, where Tarantino thinks there will be opportunity for the company to “accelerate high-ROIC unit expansion.” This could shine a light on the company’s “scarce compounding growth characteristics (solid double-digit annual revenue growth with capital-efficient model) that should help to support premium valuation metrics on the shares.”
Overall, Tarantino rates CMG shares an Outperform (i.e., Buy) while the $1,750 price target suggests the stock could be gaining 12% over the next 12 months. (To watch Tarantino’s track record, click here)
Currently there are 23 CMG reviews from Wall Street analysts with 16 recommending to Buy and 7 suggesting to Hold, all adding up to a Moderate Buy consensus rating. The average price target clocks in at $1,674.48, indicating share appreciation of a modest 7% in the year ahead. (See CMG stock analysis 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.
