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Chipotle Stock Falls After Q4 Print: Should Investors Buy The Dip?

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Jayson Derrick
·4 min read
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Casual restaurant chain Chipotle Mexican Grill, Inc. (NYSE: CMG) reported Tuesday with fourth-quarter results that prompted a 3% selloff in shares by Wednesday morning.

Here's how the Street reacted to the print.

Raymond James analyst Brian Vaccaro maintains a Market Perform rating on Chipotle's stock with no price target.

KeyBanc Capital Markets analyst Eric Gonzalez maintains an Overweight rating on Chipotle's stock with an unchanged $1,625 price target.

Morgan Stanley analyst John Glass maintains an Equal-weight rating on Chipotle's stock with a price target lifted from $1,352 to $1,465.

Wedbush analyst Nick Setyan maintains an Outperform rating on Chipotle's stock with a price target lifted from $1,600 to $1,800.

Cowen analyst Andrew Charles maintains an Outperform rating on Chipotle's stock with a price target lifted from $1,640 to $1,900.

Stephens analyst James Rutherford maintains an Equal-Weight rating on Chipotle's stock with a price target lifted from $1,265 to $1,450.

Chipotle reported an 11.6% year-over-year increase in revenue to $1.61 billion as comps rose 5.7% versus estimates of $1.57 billion and 4%, respectively, Vaccaro said in a note.

Digital sales as a percentage of total sales were steady from the prior quarter at around 49%, half of which was delivery, the analyst said.

The company's strong sales results were offset by store margins coming in at 19.5% versus management's targeted algorithm of 22%, he said.

Margins were impacted by higher delivery fees and COVID-19-related costs, Vaccaro said.

Earnings per share of $3.48 beat the research firm's estimate of $3.39 but were shy of the Street's consensus estimate of $3.73, according to RayJay.

Digital sales were higher by 177% year-over-year and online transactions are proving to be sticky, Gonzalez said in a note.

The company noted that it retained 80% to 85% of digital gains even though more stores re-opened for indoor dining, the analyst said.

Chipotle's recent momentum in digital orders continued into the new quarter, as management noted online sales accounted for more than 50% of orders in January, he said.

View more earnings on CMG

Looking forward the company is investing in new digital initiatives, including a focus on drive-thru "Chipotlanes," and leveraging its 19 million-strong rewards program user base, according to KeyBanc.

Related Link: A Look Into Chipotle Mexican Grill's Price Over Earnings

Chipotle investors' attention in 2021 will focus on management's ability to close the average unit volume/restaurant margin gap that "remained stubbornly present," Glass said in a note.

The fourth-quarter report offered no new evidence of the company's ability to close the gap, in part due to margin impacts from the pandemic, the analyst said.

Investors will be looking for confirmation that improving sales and COVID-related costs falling will translate to margin gains, he said.

Average unit volumes are expected to hit $2.5 million or better in 2021 and this should in theory translate to an approximate 25% restaurant margin, Glass said.

"We think that 21 will play out with sequential improvement in margins, lowest in 1Q and by the 2H, the remaining margin pressure of an estimated ~80 bps from delivery will remain, enabling CMG to potentially achieve a ~24% restaurant margin even as AUVs reach $2.5M."

Chipotle's first-quarter margin guidance implies both labor and COGS leverage that will be partially offset by higher increased operating expenditure expenses like a higher mix of delivery orders, Setyan said in a note.

Cost of goods sold guidance suggests 50 to 100 basis points of lower food costs relative to pre-COVID-19 levels, the analyst said.

As such, much of the higher financial burden from delivery costs could be "recaptured" moving forward, he said.

Chipotle's acceleration of sales trends in January is encouraging and could set the tone for the coming months, Charles said in a note.

Near-term sales drivers to support sales include a Super Bowl commercial, the launch of digital-only quesadillas, ongoing testing of brisket, a focus on catering and the retrofitting of Chipotlanes, the analyst said.

The momentum should translate to Chipotle achieving 17.8% comp growth in 2021 versus the Street's current estimate of 11.2%, he said.

Chipotle's stock warrants a premium multiple versus its historical average, as the company has plenty of room for growth amid "blue sky opportunities" in core restaurants, smaller format stores and delivery-only locations, Rutherford said in a note.

The research firm's new $1,450 price target is based on 28 times EV/EBITDA, but the stock is trading today at 30 times 2022 EV/EBITDA versus the 2019 average of 26.3 times and a five-year average of 21.7 times, according to Stephens.

CMG Price Action: Shares of Chipotle Mexican Grill were trading lower by 2.31% Wednesday at $1,490.30.

Photo courtesy of Chipotle.

Date

Firm

Action

From

To

Feb 2021

Deutsche Bank

Maintains

Hold

Feb 2021

Wells Fargo

Maintains

Overweight

Feb 2021

Cowen & Co.

Maintains

Outperform

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