Chipotle's Q1: The Wall Street Reaction

Chipotle Mexican Grill, Inc. CMG reported a mixed first-quarter earnings report Wednesday, with an EPS beat and sales miss, but shares moved notably higher. Is now the time for investors to be buyers of the stock? Here's a summary of what some Wall Street analysts are saying after the print.

The Analysts

• Canaccord Genuity's Lynne Collier upgraded Chipotle's stock rating from Hold to Buy with a price target lifted from $300 to $425.
• Bernstein's Sara Senatore maintains an Outperform rating on Chipotle's stock with an unchanged $500 price target.
• Baird Equity Research's David Tarantino maintains an Outperform rating on Chipotle's stock with a price target lifted from $400 to $440.
• Stifel's Chris O'Cull maintains a Hold rating on Chipotle's stock with a price target lifted from $275 to $325.

Canaccord

Chipotle's Q1 could signal the company's fundamentals have bottomed out, Collier said in an upgrade note.

EPS of $2.13 came in ahead of the analyst's estimate of $1.64 and comps rose 2.2 percent versus the Street's estimate of 1.3-percent growth. The earnings report makes it reasonable to assume management's prior margin guidance of 17.5 to 18.5 percent in 2018 is not only conservative, but potentially beatable, Collier said. 

The analyst's other takeaways from the Chipotle report were: 

• Sales trends in April are so far similar to Q1.
• An upcoming catalyst exists in the form of a conference call before the second-quarter print.
• Digital sales are seeing momentum and rose 20 percent which represents 8.8 percent of total sales.
• The outlook for low-single-digit comps and 130-150 new units was reiterated.
• Catering as a percentage of sales rose 15 percent when delivery was added. 
• The stock buyback program was boosted by $100 million.

Bernstein

Chipotle's recently appointed CEO Brian Niccol made it clear he's "putting his stamp on the company," as evidenced by better comps in the quarter, Senatore said in a research report. The executive's expertise in marketing aligns with the analyst's view that the company needs to become "exponentially more effective" at current or lower existing spending levels.

Chipotle might feel it necessary to oversee one-time G&A investments in technology and analytics; the company's commentary suggests there will also be a "significant redeployment of current spend," the analyst said.

Chipotle's investments would be focused on addressing a "considerable" opportunity ahead, with the potential to deliver upside to its long-term goal of operating 5,000 stores, Senatore said. 

Related Link:

Chipotle's Turnaround Is 'Underway,' But Stephens Is Neutral Until Traffic Improves

Baird

In conjunction with a better-than-expected earnings report, Niccol offered a "compelling vision" that would allow the restaurant chain to deliver stronger operating momentum over the coming years, Tarantino said in a research report. Encouragingly, the company also reassured investors that it has no plans on slowing down unit growth in the coming years or partaking in any large investments without "having line of sight to achieving a good ROI," the analyst said. 

Stifel

CEO Niccol made it clear during the conference call that his executive team is focused on improving consumers' ability to access the brand through digital orders, delivery, kiosks, catering and menu innovation, O'Cull said in a note. Doing so would address one of the biggest complaints about the brand, the analyst said: that it isn't convenient enough.

Chipotle is "on the correct path" to fixing its biggest problem, but if traffic declines fail to reverse, it would be difficult for Chipotle to achieve the high end of its 2018 restaurant margin goal of 18.5 percent, the analyst said.

"Given the traffic declines and the cause of the EPS upside, we do not believe Q1 rtesults indicate the company is on a road to recovery, but we were encouraged by the CEO's remarks about making the brand more accessible and top-of-mind with consumers." 

Price Action

Chipotle shares were up 24.5 percent at $422.50 at the close Thursday.

Related Link:

Making Sense Of A $500 Price Target On Chipotle Shares

Photo courtesy of Chipotle.