Chipotle Mexican Grill: What The Analysts Are Saying
Chipotle Mexican Grill (NYSE: CMG) on Thursday reported a strong fourth quarter result, which included a better-than-expected EPS and revenue. The company announced an EPS of $2.53, beating the consensus estimate of $2.52. Revenue of $844.1 million increased 20.7 percent year-over-year and beat the consensus estimate of $826.24 million.
Following Chipotle Mexican Grill's results, many analysts issued their thoughts.
Wunderlich Securities: Food inflation a concern
Robert Derrington, analyst at Wunderlich Securities said that Chipotle offered investors a “strong” quarter despite weather concerns. Despite the positives, Derrington is in no hurry to upgrade the name, citing valuation concerns and food inflation worries.
“While we modestly improved our 2014 SSS, we lowered our 2014 EPS (to $12.70 from $12.90) and 2015 (to $15.40 from $15.80), reflecting higher G&A (stock comp) and food inflation in both years,” said Derrington in a note to clients. “While the market celebrated the SSS and EPS ‘beat' lifting CMG 13.5 percent in the aftermarket to $560, it appears “priced to perfection” at 44.1x our 2014, 36.4x our 2015 EPS.”
As a reminder, on December 26 of last year, the USDA's Economic Research Service (ERS) forecasted food price inflation will increase in 2014 to “a range closer to historical norm” with the food, food-at-home, and food-away-from-home consumer price index expected to increase 2.5 percent to 3.5 percent over 2013 levels.
Shares are Hold rated with a price target increased to $542 from a previous $500.
Miller Tabak: Positives already priced in to shares
Stephen Anderson, analyst at Miller Tabak said that Chipotle was a “top pick” in 2013 and his three-part bullish stance on the company remains intact.
In a note to clients, Anderson explained his bullish stance: “(1) mid-to-high-single-digit comps supported by steady traffic growth; (2) more moderate food costs, which combined with a 3Q14 menu price increase we think will fuel margin expansion; and (3) a robust new unit pipeline.”
Despite the bullish stance, Anderson is taking a step back, for valuation reasons.
“Given the recent rally that has more than doubled CMG's share price in the past 18 months, we see limited near-term upside in CMG shares,” said Anderson.
Anderson recommends investors buy Panera Bread (NASDAQ: PNRA) instead of Chipotle, and explained the company is “seeking to implement many of the same throughput-driving measures Chipotle has undertaken in recent quarters.”
Shares of Chipotle are Hold rated with a $510 target. Shares of Panera Bread are Buy rated with a $223 price target.
Deutsche Bank: “CMG = OMG”
Jason West, analyst at Deustche Bank said that Chipotle has done a lot to impress investors, but shares are fully valued at current levels.
West increased his 2014 EPS estimates by 1.5 percent and wrote in a short note to clients, “post-the reset on estimates and expectations, shares look fully valued.”
Shares are Hold rated with a price target increased to $550 from a previous $500.
UBS: Outlook not so simple
Keith Siegner, analyst at UBS said that Chipotle has proven that it can overcome a challenging macro environment, but this is not sufficient reason to maintain a positive bias.
“It was very frustrating though to see all restaurant-level profit upside walk out through SG&A primarily as bonus,” said Siegner in a note to clients. “Further, guidance for higher inflation and +40bps YoY G&A (primarily bonus) offset most of the upside from the 4% price increase we now added to 2014. With a 23x 2014E EBITDA multiple (based on new peak share prices aftermarket) leaving little margin for error against now even higher expectations.”
Siegner wrote that the company still has room to increase traffic growth in the first quarter, which is the seasonally weakest period. More importantly, Siegner is waiting to see if the company can continue any momentum into the second quarter, which is seasonally the strongest of the year.
Shares are Neutral rated with a price target of $530.
Credit Suisse: Chipotle is unstoppable
Karen Holthouse said that the company's traffic numbers were impressive and supports a view that the company has all the right tools to continue growing.
In a note to clients titled “Neither snow, nor rain, nor online shopping can stop the burrito eater," Holthouse wrote that, “favorable demographics, a strong value proposition, and a growing willingness to proactively drive traffic can continue to drive comps ahead of expectations.”
Holthouse also wrote that comps are “firing on all cylinders” with Chipotle delivering on throughout initiatives, and that add-ons and sides contributed positively.
Holthouse believes that the core Chipotle consumer is “recovering,” which justifies shares maintaining an Outperform rating with a price increase to $640 from a previous $620.
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