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Buy Chipotle (CMG) Stock Up 60% in 2019 on Digital Sales, Earnings Growth?

Benjamin Rains

Chipotle CMG shares have skyrocketed over 60% this year to crush the market’s roughly 13% climb. The fast-casual restaurant chain’s jump has its stock price racing back toward its 2015 highs. So, let’s see if investors should consider buying high-flying Chipotle stock as it continues to ride a wave of positivity following its blowout Q4 earnings.

Overview

Chipotle’s Q4 revenue surged 10.4% to hit $1.23 billion, which surpassed our Zacks Consensus Estimate and easily topped Q3’s 8.6% top-line growth. At the bottom end of the income statement, CMG posted adjusted earnings of $1.72 per share to beat our estimate by 23.7%. Aside from the burrito chain’s impressive quarterly top and bottom-line performances, the firm’s full-year 2018 revenue jumped 8.7%. Plus, comparable restaurant sales popped 4.0%, while digital sales soared over 42%.

Going forward, investors and Wall Street will continue to pay close attention to Chipotle’s ability to grow its digital business. Digital sales accounted for roughly 11% of total sales in 2018. In the fourth quarter, digital revenue soared 65.6% and made up 12.9% of overall revenue. Chipotle’s e-commerce efforts have been a big part of new CEO Brian Niccol’s growth initiatives.

Since Niccol’s arrival from Yum Brands’ YUM Taco Bell last spring, he has focused on digital ordering and delivery. The moves are part of a larger industry trend in the Amazon AMZN age that has seen giants such as Starbucks SBUX and McDonald’s MCD, as well as retailers Walmart WMT and Target TGT, all dive into mobile ordering, online pick-up, and delivery.

In terms of its physical expansion, CMG opened 40 new restaurants last quarter, while closing or relocating just 12. Chipotle owned and operated all of its 2,491 restaurants as of the end of the year, across the U.S., Canada, the UK, France, and Germany. Some investors might remember that Chipotle rose to prominence on the back of its healthy and fresh ingredients and helped popularize the larger fast-casual movement that includes Shake Shack SHAK and others.

It is also worth remembering that Chipotle has fought hard to shake off multiple food safety incidents over the past serval years, which helped spark the massive decline. The chart below helps put CMG’s recent run of success into context. Shares of Chipotle have soared nearly 120% over the last 12 months to destroy its industry’s roughly 11% climb and the S&P 500. CMG stock also touched another new 52-week high of $701.96 per share on Wednesday.

 

 

Outlook

Chipotle’s recent run will be difficult to maintain and at least some investors are likely to start to take some profits sooner than later. Nonetheless, some analysts see more upside in CMG stock over the next year. Baird analysts just raised their price target for Chipotle from $650 a share to $760. This marks just over 8% upside to the stock’s current price point.

Looking ahead, CMG’s adjusted first quarter fiscal 2019 earnings are projected to surge over 36% on the back of 9.6% revenue growth, based on our current Zacks Consensus Estimates. The firm’s full-year projections look similarly strong. Chipotle’s 2019 revenue is projected to pop 8.7% from $4.86 billion last year to $5.29 billion, with its EPS figure expected to soar over 35%.

Maybe more importantly, especially for investors who haven’t taken advantage of CMG’s recent climb, the burrito power’s full-year 2020 revenue is projected to jump nearly 11% above our current year estimates. Along with what could be impressive longer-term top-line growth, Chipotle’s 2020 earnings are expected to climb 27% above our 2019 estimate.

Bottom Line

Chipotle is a Zacks Rank #2 (Buy) at the moment based in large part on its positive 2019 and 2020 earnings estimate revisions picture. CMG also sports an “A” grade for Growth and “B” for Momentum in our Style Scores system.

The company is about a month away from its first quarter 2019 earnings release, which is due out on April 24. And it would seem that Chipotle stock is at least worth keeping an eye on despite its massive climb, as the once might fast-casual giant looks poised for steady top and bottom-line growth.

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