Chipotle (CMG) Shares Up 32% YTD: More Room for Upside?
Chipotle Mexican Grill, Inc. CMG is poised to benefit from robust comps growth, digital initiatives and Chipotlane add-ons. Also, focus on product introduction (through stage gate process) has been an important factor for sales improvement over the last few quarters.
So far this year, shares of Chipotle have gained 31.9% compared with the industry’s 12.5% growth. The price performance was backed by a solid earnings surprise history. Chipotle’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters. Earnings estimates for full-year 2021 and 2022 have moved up 4.8% and 3.8%, respectively, in the past 90 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy). This indicates robust fundamentals and an expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Major Growth Drivers
Robust Comps Growth: Chipotle continues to impress investors with robust comparable sales growth. Despite the pandemic, the company reported comps growth for the fourth straight quarter. Comps in the second quarter increased 31.2%, following growth of 17.2% in first-quarter 2021. Consistent strength in digital sales, solid recovery of in-restaurant sales and positive customer reception to new menu items contributed to the company’s results. For third-quarter 2021, the company anticipates comps growth of low-to-mid double digits.
Digitization Efforts: Chipotle is leaving no stone unturned to make digital ordering more appealing to customers and increasingly efficient for restaurants. Notably, the company has redesigned and simplified the online ordering site, enabled online payment for catering and collaborated with several well-known third-party providers for delivery. Also, there has been a significant increase in digital orders and guest satisfaction since the rollout of its “Smarter Pickup Times” technology. In order to boost convenience in the digital ordering platform, the company also initiated features such as unlimited customization, contactless delivery and group ordering. Another initiative that has been benefiting the company is the rewards program. During second-quarter 2021, digital sales increased 10.5% year over year to $ 916.5 million. The company witnessed a rise in order ahead transactions, owing to enhanced guest access and convenience.
Emphasis on Chipotlanes: Chipotle continues to focus on the addition of Chipotlanes for the enhancement of customer access and convenience as well as improvement in new store restaurant sales, margins and returns. During second-quarter 2021, Chipotle opened 56 new restaurants, out of which 45 had Chipotlane in it. Notably, digital gap for restaurants (with Chipotlanes) were 15% higher compared with non-Chipotlane restaurants. For 2021, the company expects 70% of its openings to have a Chipotlane in it.
Menu Innovation: Chipotle is consistently focusing on boosting sales to stay afloat in the competitive environment. The introduction of new items, solid marketing activities that include a combination of brand-building efforts as well as transaction-driving promotions and advertising are likely to lead to a steady inflow of new customers. Chipotle is likely to emphasize on Tractor beverages, which is subject to normalization of the pandemic scenario. Nonetheless, increased focus on the stage gate process, leveraging digital programs to expand access and convenience, frequent customer interaction through its loyalty program, menu innovation and operational excellence are likely to benefit the company. Notably, these factors will help customers to resonate more with the company.
Other Solid Restaurant Bets
Some other top-ranked stocks in the same space are McDonald's Corporation MCD, The Wendy's Company WEN and Jack in the Box Inc. JACK, each carrying a Zacks Rank #2.
McDonald's has a three-five year earnings per share growth rate of 11.7%.
Wendy's 2021 earnings are expected to rise 43.9%.
Jack in the Box has a trailing four-quarter earnings surprise of 26.4%, on average.
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