Bank Of America Says Chipotle Mexican Grill Had Strong Quarter, Lowers Estimates

Joseph Buckley of Bank of America on Wednesday commented on Chipotle Mexican Grill, Inc.'s CMG fourth-quarter results.

Chipotle Mexican Grill earned $3.84 in the quarter, falling short of Buckley's estimates of $3.90. The company's same-store sales gains of 16.1 percent also fell short of the 17 percent plus the analyst expected.

Buckley notes that management was "positive but non-specific" about early 2015 sales and commentary on 2015 costs were "cautious." As such, the analyst is lowering his 2015 earnings per share estimates to $16.95 from $17.30 as cost challenges include $2 million in the first quarter from a recent pork animal welfare issue with a supplier, $4 million to $8 million from the Affordable Care Act, $2 million for a biennial manager meeting in the third quarter and an expectation that food costs remain at about 35 percent of sales and a yet to be determined stock compensation expense.

Buckley believes that Chipotle Mexican Grill's new restaurants keep improving and are running first-year sales of $1.8 million to $1.9 million, while average unit volumes for established restaurants are almost $2.5 million.

Buckley adds that the company is considering another price increase on steak and Barbacoa meals and the effect of such a price increase could be 1 percent to 1.5 percent from an overall menu perspective. The analyst calculates that a margin increase of 100 basis points on projected 2015 sales could add more than $0.90 to earnings per share on an annualized basis.

Shares are Buy rated with a $750 price target.