Chipotle Mexican Grill, Inc. (NYSE: CMG) reported first-quarter results Wednesday highlighted by a top- and bottom-line beat and 9.9-percent growth in comparable sales.
- Wedbush's Nick Setyan maintained a Neutral rating on Chipotle Mexican Grill with a price target lifted from $680 to $700.
- Wells Fargo's Jon Tower maintained at Market Weight, unchanged $647 price target.
- KeyBanc Capital Markets' Eric Gonzalez maintained at Overweight, price target lifted from $625 to $780.
- Stephens' Will Slabaugh maintained at Equal-Weight, unchanged $650 price target.
- Chipotle shares were trading lower by nearly 5 percent at the time of publication Thursday.
See Also: Is A Chipotle Short Squeeze Ahead?
Wedbush: Delivering On 'Sky-High Expectations'
Chipotle was up against "sky-high expectations" and delivered a report that was mostly in-line, Setyan said. The company reported 5.8-percent transaction growth and 2-percent mix growth.
Looking forward to the full year, Setyan said the fast casual chain is modeled to show 8.2-percent same-store sales growth driven by its loyalty program, menu innovation and marketing initiatives.
Wells Fargo: 'Not As Strong'
The magnitude of Chipotle's earning outperformance isn't strong enough to satisfy bulls, with shares trading at 23.5 times 2020 estimated EBITDA and 2.4-percent free cash flow yield, Tower said in a note.
Coupled with "only" 150 basis points of year-over-year store-level margin expansion; an EBITDA miss; and management talking down second-quarter same-store sales expectations, the earnings report is "not as strong" as it appears, the analyst said.
KeyBanc: 20 In 2020 Alive
Chipotle showed "unprecedented" growth in the digital business, with an "astonishing" 100-percent increase in digital sales, Gonzalez said in a note.
Digital sales as a percentage of total sales rose from 8.8 percent last year to 15.7 percent. The restaurant chain continues to solidify its status as a winner in the "economically challenged/VC-subsidized, third-party delivery ecosystem," the analyst said.
Chipotle's quarter emphasizes the potential for the company to earn $20 per share in a bull-case scenario in 2020, Gonzalez said. Street estimates don't give the company enough credit for "sweeping changes" to personnel and process, supply chain improvements, labor scheduling and higher sales leverage, according to KeyBanc.
Stephens: Margin Assumptions May Vary
Chipotle's restaurant-level margins rose 150 basis points to 21 percent in the quarter and should improve 110 basis points to 19.8 percent for the full fiscal year, Slabaugh said in a note. The Street has reason to show notable variance in estimates, as margins are highly sensitive to same-store sale assumptions, the analyst said.
For example, Slabaugh said his own 4.3-percent same-store sales growth estimate for fiscal 2020 could be "either aggressive or conservative" depending on the company's success in loyalty, delivery and menu innovation. At this point, the outlook on all three "remains a bit opaque," he said.
It's questionable to model $20 in earnings in 2020 unless comps remain near the 10-percent scenario, Slabaugh said, adding that this is "where we believe many bulls remain in a blue sky scenario."
Related Link: Morgan Stanley Passes On Chipotle For Domino's
Photo courtesy of Chipotle.
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