4 Analysts Give Thumbs Up To Chipotle's Latest Earnings Report

Four analysts pored over the latest earnings report from Chipotle Mexican Grill, Inc. CMG and very much liked what they saw. Investors also liked what they saw, with the stock surging to new all-time highs in Wednesday's session.

The View From Cowen: Andrew M. Charles, senior research analyst at Cowen, rates Chipotle as Outperform and upped its price target from $1,850 to $2,080.

Charles predicted the restaurant chain will exceed consensus expectations based on its "growing mix of digital sales for pick-up & third-party delivery that we believe will end 2021 at 49% of sales vs 46% in 2020 & 20% pre-COVID-19.” He also cited the “accelerating consumer demand for transparent food sourcing” to be in its favor, while menu innovations and increased advertising will keep it front and center with the public.

“Further, the Chipotle Rewards loyalty program is showing early signs of promise and strong growth in enrollment to 23M active members in 2 years,” he wrote in a note.

The View From Stephens: James Rutherford, analyst at Stephens, rates Chipotle as Overweight and raised its price target from $1,700 to $1,800.

“CMG checked all the right boxes this quarter with above-consensus SSS, unit growth, RL margins, and EPS. Digital sales were up 11% Y/Y, but the bigger driver was the return of dining room sales particularly at lunch,” he wrote. “Non-digital sales were up 83% Y/Y, but have room to go as they remain down about 30% vs. pre-COVID levels.”

Rutherford also stressed Chipotle’s “3Q comp guide was for a positive low- to mid-double-digit number” and added that Stephens was updating the company’s third-quarter same-store sales (SSS) forecast from 8.8% to 13% and its FY21 SSS from 16.5% to 17.9%. He also updated the third-quarter total revenue estimate from $1.86 million to $1.94 million and the FY21 total revenue estimate from $7.3 million to $7.4 million.

See Also: Stock Market Live: Netflix Earnings Reaction

The View From Wedbush: Nick Setyan, equity research analyst at Wedbush, rates Chipotle as Outperform with a 12-month price target at $1,800. He praised the results as being “well above expectations” and cited menu innovations, an increased marketing budget and the strength of its digital sales and loyalty program for the results.

“We believe CMG is poised to see accelerated market share gains in a post-COVID environment, resulting in sustained growth above pre-COVID levels and an expanding premium relative to its pre-COVID valuation,” he wrote.

Setyan faulted the company’s management for creating potential confusion during the earnings call on its commitment to a two-step minimum wage increase, adding that “many investors may have walked away from the call believing management backtracked from the second price increase.”

But he stressed that the second wage increase will take place and management will “assess not only the labor impact, but whether or not it needs to offset any food cost/supply chain increases as well.”

The View From Raymond James: Brian M. Vaccaro, equity research analyst at Raymond James, rates Chipotle as Strong Buy and maintained a $1,800 price target, adding that he was “raising our '22 EPS estimates ($36.62, remain well above Street consensus) following the company's strong 2Q results/3Q comp guide (mid-point implies two-year accelerating by ~500 bp vs. 2Q21).”

Vaccaro observed that the chain’s “recent price increases are seeing little resistance” while its in-restaurant sales, particularly for the lunchtime hours, continued to recover after the pandemic’s disruption.

He warned store margins are expected to decline, with increased beef and freight costs driving that downward motion, but he predicted it would only be temporary and forecast additional menu pricing later in the year would “cover recent wage increases, allowing margins to move well into the 25-26% range into '22.”

CMG Price Action: Chipotle's trading higher by 12% to $1,766.41 at publication time.
Photo: Mike Mozart / Flickr Creative Commons.