Market Overview

Chipotle Mexican Grill Earnings Preview: EPS, Sales Growth Expected, but Will It Be Enough?

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Chipotle Mexican Grill (NYSE: CMG), which is testing a new tofu offering, is scheduled to report its fourth-quarter and 2012 results Tuesday, February 5, after the markets close. Previous rapid growth has slowed in the past year, and investors interested in how Chipotle is holding up to pricing and cost challenges and intensifying competition from the likes of Taco Bell's new upscale menu. Back in January, the company warned of a faster-than-expected rise in food costs during the fourth quarter

The company heads into this report with income increases in the past three quarters and double-digit revenue growth in the past four.

Expectations

Analysts on average predict that Chipotle will report that revenue for the quarter jumped more than 17 percent year-over-year to $698.87 million. Earnings of $1.96 per share are also in the consensus forecast. That would be up from a reported profit of $1.81 per share in the comparable period of last year. But in the past 60 days, that earnings per share (EPS) estimate has dropped from $2.09. And Chipotle fell short of consensus EPS estimates in two of the past six quarters. The third-quarter earnings of $2.27 per share missed expectations by about 1.2 percent.

Chipotle said third-quarter net income increased 20 percent as traffic grew and it opened more stores, but analysts expected more. Strong revenue growth fell short of estimates as well. The report came out not long after billionaire hedge fund manager David Einhorn made a case for shorting the stock. The share price fell almost 17 percent in the days following the third-quarter report.

For the full year, the analysts' consensus forecast calls for per-share earnings of $8.76 on revenues of $2.73 billion. That would be up from $6.81 EPS and $2.27 billion in revenue in the previous year. That earnings estimate also has pulled back in the past 60 days, from $8.89 per share.

The Company

Chipotle Mexican Grill operates approximately 1,350 fast-casual restaurants in the United States, Canada, the United Kingdom and France that feature organic ingredients and more naturally raised meat. It is as S&P 500 component, was founded in 1993, and its headquarters are in Denver. The company has a market capitalization about $9.8 billion. M. Steven Ells is the founder and chairman. He and Montgomery F. Moran are co-chief executives.

Competitors include Buffalo Wild Wings (NASDAQ: BWLD), Panera Bread (NASDAQ: PNRA) and Yum! Brands (NYSE: YUM), parent of Taco Bell. Buffalo Wild Wings and Panera are expected to post strong earnings growth and double-digit revenue growth when they report fourth-quarter results in the coming days. Analysts expect Yum! Brands to report essentially no year-over-year revenue growth for its fourth quarter.

During the three months that ended in December, Chipotle said plans to open its first ShopHouse Southeast Asian Kitchen restaurant in Los Angeles in early 2013 and announced it added an additional $100 million to an existing $100 million share repurchase plan. There was also the David Einhorn short recommendation in early October, which got a lot of press.

Performance

Chipotle has a long-term EPS growth forecast of more than 17 percent, but its price-to-earnings (P/E) ratio is greater than the industry average. The operating margin is greater than the industry average too, the return on equity is less than 24 percent and the return on investment is about 20 percent.

The number of Chipotle shares sold short, as of mid-January, represents more than 11 percent of the float. But the short interest has been falling from a 52-week high in mid-November.

The consensus recommendation of the 28 analysts surveyed by Thomson/First Call who follow the stock is to hold shares. Five rate the stock at Strong Buy, while one rates it at Sell. The analysts' mean price target, or where they expect the stock to go, represents about five percent potential upside. But note that the consensus target is well below than the 52-week high from last spring.

Except for a brief dip in January when Chipotle released preliminary results, the share price has risen since hitting a low following the third-quarter report. It is up more than 37 percent since then, as well as above the 50-day moving averages. Over the past six months, the stock has outperformed Yum! Brands but it has underperformed the broader markets.

Posted-In: Buffalo Wild Wings Chipotle Mexican Grill Panera BreadEarnings Long Ideas Short Ideas Previews Trading Ideas Best of Benzinga

 

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