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Chipotle (CMG) Stock Surges 90% YTD: Will Growth Continue?

Zacks Equity Research

Chipotle Mexican Grill Inc. CMG continues to benefit from food safety enhancement, customer experience and various sales building and strategic initiatives. The company is also prioritizing its e-commerce program to gain customer confidence as part of its digital innovation.

Backed by these strategic efforts, the company delivered better-than-expected earnings for the eight consecutive quarters. Year to date, shares of this Zacks Rank #2 (Buy) company have surged 89.8% compared with the industry’s 18.4% growth.

In the third quarter of 2019, Chipotle's earnings of $3.82 per share surpassed the Zacks Consensus Estimate of $3.20. The bottom line also improved 76.9% from the year-ago quarter driven by increased revenues and strong operating margins.

Meanwhile, earnings estimates for 2019 and 2020, have been revised upward over the past 30 days, reflecting analysts’ optimism surrounding the company’s earnings potential. Let’s delve deeper.

Key Catalysts

Chipotle is working on strengthening its brand and driving sales by shifting its strategy from giveaways, discounts and rewards to new menu items, operational excellence, enhancement of guest experience by retraining workers, technology-driven convenience, and more aggressive brand marketing. Roll out of queso substantially spurred sales. Additionally, Chipotle has been working on a new pipeline for its menu offerings.

Notably, its robust marketing activities, including a combination of brand-building efforts as well as transaction-driving promotions and advertising, are resulting in a steady inflow of new customers.

To drive digital sales and retain customers, the company is aggressively trying to make digital ordering more appealing to customers and more efficient for its restaurants. In the regard, it is imperative to mention that Chipotle redesigned and simplified its online ordering site, enabled online payment for catering, customized online meals and collaborated with several well-known third-party providers for delivery.

In the third quarter of 2019, digital sales grew 88% year over year. Digital sales came in at  $257 million during the third quarter and represented 18.3% of sales. In fact, delivery is now available for more than 97% of its restaurants.

Chipotle, being one of the most recognized fast-casual Mexican restaurant chains in the United States, had a good share of negative publicity throughout 2016 due to an issue of food-borne illnesses that surfaced toward 2015-end.

As a safety measure, the company was forced to close several outlets. Ever since then, this fast-casual Mexican chain has been undertaking aggressive efforts to restore its economic model as well as regain customer trust.

Other Key Picks

Other top-ranked stocks that warrant a look in the same space include Chuy's Holdings, Inc. CHUY Brinker International, Inc. EAT and Dunkin’ Brands DNKN. While Chuy’s sports a Zacks Rank #1 (Strong Buy), Brinker and Dunkin carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chuy’s and Dunkin’ have an impressive long-term earnings growth rate of 17.5% and 10.9%, respectively.

Shares of Brinker have increased 11.6% in the past six months against its industry’s 1.9% decline.

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