Wedbush: Chipotle Shows First Signs Of Improvement With Preannouncement

Chipotle Mexican Grill, Inc. CMG preannounced Q4 results, indicating improving top-line trends ahead of expectations.

“We believe current valuation appropriately reflects an improving top-line trajectory, as well as a shift toward a focus on margins that renders current expectations realistic,” Wedbush’s Nick Setyan said in a report.

Setyan maintained a Neutral rating on the company, with a price target of $400.

Q4 Preannouncement

Chipotle's preannouncement indicated an improvement in comps from -20.2 percent in October and -1.4 percent in November to +14.7 percent in December. The company had reported comps of -30 percent for December 2015, which implies -15 percent on a two-year stack.

“If this 2-year trend were to continue into Q1, it would imply SSS growth +15% vs. current +12% consensus. We believe the December data point represents the first evidence of an improving sales trajectory that is in-line or above Street expectations,” Setyan wrote. He raised the Q1 comp estimate from 13 percent to 15 percent.

Margin Expectations

Chipotle’s margins may remain under pressure in 2017 due to elevated costs. The analyst mentioned, however, that the company’s margin opportunity in 2018 remained intact.

He further stated, “While higher turnover is likely to preclude meaningful labor improvement in 2017, we expect labor leverage to resume 2018. We also view a 2018 price increase as realistic.”

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Posted In: Analyst ColorReiterationRestaurantsAnalyst RatingsGeneralNick SetyanWebush
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