Chipotle Naming A New CEO Would Remove A Big Overhang, Says William Blair

Chipotle Mexican Grill, Inc. CMG is scheduled to report its fourth quarter results Feb. 6, and investors are expecting an update to the company's search for a new CEO to replace Steve Ells.

The Analyst

William Blair's Sharon Zackfia maintains a Market Perform rating on Chipotle Mexican Grill's stock.

The Thesis

Chipotle's earnings per share is likely to fall short of the $1.38 per share the consensus estimates is calling for, Zackfia said in a note. The company is projected to earn $1.05 per share in the quarter and report a low-single-digit comp decline (and a mid-single-digit traffic decline), which also falls short of the consensus estimate calling for a 1.5 percent gain.

Zackfia said Chipotle's below consensus quarter could be attributed to more difficult comparisons as the quarter progressed, a moderation of queso sales after the initial trial period in September and October, and reports in December of an illness associated with a California-based store.

The restaurant chain is likely to reiterate its 2018 guidance of opening 130 to 150 new stores, which implies a 5 to 6 percent unit growth. This would mark a decrease from the 7 to 8 percent growth seen in 2017 as management is focusing on various operational changes to improve training, integration, new restaurant openings, and other factors.

In terms of financial guidance, the ongoing search for a new CEO makes it unclear how much additional guidance will be provided, Zackfia said. The appointment of a new CEO will ultimately prove to be a "positive catalyst" and accelerate the company's turnaround. But until this is confirmed, investors could expect to see "significant near-term uncertainty."