4 Big Takeaways From Chipotle's Updated Guidance

Chipotle Mexican Grill Inc. CMG reiterated its high single-digit 2017 same-restaurant sales growth guidance on Monday evening and said it expects rising costs in Q2. Several Wall Street analysts commented on the stock following the updated guidance.

Here’s a look at the key themes they discussed.

Consistency Is Key

After a volatile and unpredictable year and a half, Chipotle need to deliver steady, predictable, consistent growth to win back investors.

“We view the next catalyst for Chipotle as stringing together a series of steady quarterly improvements (supported by operational improvements as well as marketing, noting the recent launch of its TV advertising campaign), which would then offer greater line-of-sight into FY18 earnings potential,” Piper Jaffray analyst Nicole Regan wrote.

More Investments Needed

Nomura analyst Mark Kalinowski says rising costs and sluggish growth aren't a winning combination.

“Given the lower base of earnings from 2017 and our expectation that continued investments will be required to drive the desired top-line trajectory, we lower our 2018E EPS to $12 from $12.75,” Kalinowski wrote.

Higher Food Prices Ahead

Bernstein analyst Sara Senatore wrote that no guidance cut means Chipotle is doing a good job of offsetting rising costs with cuts in other areas.

“Higher food costs and in-line topline could presage broader price increases beyond the current 20% of stores, in our view,” Senatore wrote.

Near-Term Weakness

High single digit same-store sales growth, 195-210 net new openings and a 39 percent tax rate are all in-line with expectations, leaving higher expenses to weigh on Chipotle’s stock in the near-term, Credit Suisse analyst Jason West wrote.

“Bottom line, this update should lead to modest downward earnings revisions which will likely put some pressure on the stock today,” West wrote.

West was right in his prediction, as shares of Chipotle fell more than 7 percent Tuesday to close at $425.60.

For traders deciding whether or not to buy the dip, here’s a summary of the ratings and price targets of the firms mentioned above:

• Nomura: Neutral rating, $480 price target (from $510).
• Credit Suisse: Neutral rating, $425 price target.
• Piper Jaffray: Overweight rating, $530 price target.

Image Credit: By Miosotis jade (Own work) [CC BY-SA 3.0], via Wikimedia Commons