Market Overview

Chipotle Mexican Grill Earnings Preview: Strong EPS, Sales Results Expected

Chipotle Mexican Grill (NYSE: CMG), which saw a prominent recommendation to short the stock last week but also an upgrade from an analyst at UBS this week, is scheduled to report its first-quarter 2013 results Wednesday, April 18, after the markets close.

Previous rapid growth has slowed in the past year, and investors remain 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. Earnings declined sequentially in the past two quarters, and revenue in the fourth quarter.

Expectations

Analysts on average predict that Chipotle will report that revenue for the first quarter rose about 13 percent year-over-year to $724.77 million. Earnings of $2.14 per share are also in the consensus forecast. That would be up from a reported profit of $1.97 per share in the comparable period of last year and from $1.96 in the fourth quarter.

In the past 60 days, that consensus earnings per share (EPS) estimate has remained steady. But Chipotle earnings fell short of consensus estimates in the past two quarters. The fourth-quarter EPS only missed expectations by a penny though.

Chipotle attributed fourth-quarter results in part to the opening of 60 new stores. Higher commodity costs, primarily in beef but also in salsa ingredients, were responsible for a decrease in the operating margin. The share price rose more than five percent following the fourth-quarter report.

Looking ahead to the current quarter, the forecast thus far calls for EPS up more than seven percent year-over-year to $2.76. That EPS estimate also is unchanged in the past 60 days. And revenue for the quarter is expected to be about 15 percent higher to $794.41 million. Full-year revenue is so far expected to be up by about 15 percent as well.

The Company

Chipotle Mexican Grill operates approximately 1,400 fast-casual restaurants in the United States, Canada, the United Kingdom and France that feature organic ingredients and more naturally raised meat. The company also operates two ShopHouse Southeast Asian Kitchen restaurants.

The company is as S&P 500 component, was founded in 1993 and its headquarters are in Denver. The company has a market capitalization about $10.6 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 report double-digit revenue growth when they report first-quarter results next week, though Buffalo Wild Wings EPS are forecast to be only marginally higher than a year ago. Analysts expect Yum! Brands to report a year-over-year decline in both sales and EPS for its first quarter.

During the three months that ended in December, Chipotle said it plans to open between 165 and 180 new restaurants in 2013, as well as offering hoodies and other apparel. The company also said it would test a Sofritas tofu dish, and it began catering in Colorado.

Performance

Chipotle has a long-term EPS growth forecast of more than 20 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 more than 24 percent and the return on investment is about 20 percent.

The number of Chipotle shares sold short, as of the March 28 settlement date, represents more than 12 percent of the float. The short interest has fallen since the end of February, but the days to cover is more than 11.

The consensus recommendation of the 38 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 is in the same neighborhood as the current share price. While the analysts see no real potential upside at this time, price targets could be raised if Chipotle offers an upside surprise or rosy guidance.

The share price is up more than 13 percent since the beginning of the year, though still more than 20 percent lower than a year ago. The stock saw a golden cross, the 50-day moving average rising about the 200-day one, in late March. Over the past six months, the stock has outperformed the competitors mentioned above, as well as 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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