Shares of Chipotle CMG have skyrocketed over 90% in 2019 to crush its industry’s 16%. The climb has pushed the fast-casual restaurant chain well above its 2015 highs.
Now, with Chipotle set to release its Q3 2019 financial results on Tuesday, October 22, let’s dive into some estimates and fundamentals to see if investors should consider buying CMG stock right now.
Brian Niccol officially stepped into Chipotle’s chief executive role in March of 2018, after he came over from Yum Brands’ YUM Taco Bell. The new boss didn’t do anything crazy or come up with a new menu item every week. Instead, Chipotle focused on regaining its crown as the standard-bearer of the growing industry that includes the likes of Shack SHAK and others, through fresh and quality ingredients.
On top of that, Chipotle has jumped headfirst into digital and mobile ordering as well as 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 like Target TGT all do the same.
Chipotle seems to have left its multiple food safety incidents, which helped spark its two-plus year decline, completely in the rearview mirror. Last quarter, digital sales soared 99% to account for 18% of total Q2 revenue, which climbed 13.2% to $1.4 billion. For reference, fiscal 2018’s digital sales jumped just over 42% to account for 11% of full-year sales
Furthermore, Q3 comparable sales surged 10%, driven by 7% transaction growth. Chipotle has now posted six straight periods of comps growth.
Moving on, we can see that CMG stock has climbed all the way back from its extended late-2015 decline that lasted all the way until February 2018—Chipotle announced the Niccol hire on Feb. 13. In fact, CMG shares have climbed over 185% since February 14 of last year, against its industry’s 16% climb and the S&P 500’s 9%.
Chipotle stock closed regular trading Tuesday at $826.74 per share, down approximately 3.6% off its 52-week highs. CMG currently sits way above its 200-day moving average and just above its 50-day, as it has for most of the last 12 months.
With CMG’s climb has come a somewhat bloated valuation picture. Chipotle stock is trading at 50.5X forward 12-months Zacks consensus earnings estimates right now. This comes in far above its peer group’s 24.3X average, which includes Darden Restaurants DRI, Domino's DPZ, Bloomin' Brands BLMN, and others. This also marks a premium against its own two-year median of 44.2X and low of 25.5X.
Yet it is worth noting that over the last six months CMG has traded almost exactly in line with its current forward earnings multiple. Therefore, Wall Street seems comfortable paying up for the burrito power’s story and growth. And Chipotle’s forward price/sales of 3.8 is elevated against its peer group’s 2.3 but still rest below its 2015 levels of around 4.4.
Outlook & Earnings Trends
Looking ahead, our current Zacks Consensus Estimates call for the company’s Q3 revenue to jump 12.4% from the year-ago period to reach $1.38 billion. Meanwhile, fourth quarter sales are projected to pop 12%, with fiscal 2019 expected to climb 12.9% to hit $5.49 billion.
In a sign of impressive continued growth, Chipotle’s 2020 sales are projected to jump 12.2% above our current-year estimate to reach $6.16 billion. These revenue estimates would both blow away 2018’s 8.7% growth.
On top of that, CMG’s third-quarter comps are projected to jump 9.4%, based on our Key Company Metrics estimates, with FY19 projected to pop 9.1%. Both of these same-store sales estimates would blow away fiscal 2018’s 4% comps expansion and 2017’s 6.4%.
At the bottom end of the income statement, Chipotle’s adjusted quarterly earnings are expected to soar 46% to hit $3.15 per share. This would easily top the second quarter’s 39% adjusted EPS expansion.
Peeking ahead, Q4’s adjusted EPS figure is projected to climb over 65% to help push FY19 up by roughly 48%. Then the fast-casual chain’s fiscal 2020 earnings are expected to surge 28.4% above our fiscal 2019 estimate.
Investors will also notice how much more positive Chipotle’s earnings picture has turned recently. And CMG has crushed our quarterly earnings estimates in the trailing four periods, for a 13.2% average beat.
Chipotle’s earnings revision activity helps it earn a Zacks Rank #1 (Strong Buy) at the moment. However, it is never easy buying a stock before earnings, as no one knows how Wall Street will react.
There clearly are signs that CMG could continue to climb to new highs. Of course, a post-earnings release selloff could be in the cards simply because the stock is up a whopping 92% in 2019 and investors might look to take home some of those impressive gains.
Still CMG sports a “B” grade for Growth in our Style Scores system and Chipotle stock looks worth considering as a longer-term play given its outlook.
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