The Street Debates Chipotle Mexican Grill's Q2 Results, Digital Sales

Casual fast food chain Chipotle Mexican Grill, Inc. CMG reported second-quarter results Wednesday that were highlighted by sequentially improving same-store sales metrics in June and July. Here's how the Street reacted.  

The Chipotle Analysts

Longbow Research analyst Alton Stump maintains a Neutral rating on Chipotle's stock. 

Wedbush analyst Nick Setyan maintains an Outperform rating on Chipotle's stock with a price target lifted from $1,200 to $1,320.

KeyBanc Capital Markets Eric Gonzalez maintains an Overweight rating on Chipotle's stock with a price target lifted from $1,250 to $1,300.

Raymond James analyst Brian Vaccaro maintains a Market Perform rating on Chipotle's stock. 

Longbow: 'Impressive' Recovery At Chipotle 

Chipotle reported second-quarter EPS of 40 cents versus the consensus estimate of 35 cents, but comparable sales were down 9.8% versus the Street's expectations of down 10.8%, Stump said in a note. Chipotle did note that comparable sales were up 6.4% to date in July, he said. 

Chipotle's return to positive same-store sales is encouraging, but further clarity on the magnitude and duration of the impact of the COVID-19 pandemic on the company's results is needed before turning positive on the stock, the analyst said. 

Related Link: BofA Credits Chipotle For Performing Better Than Expected

Wedbush Sees Early Glimpse Of Chipotle's Future Success

Chipotle's report fell short of "lofty" investor expectations, as the unofficial investor comp expectations called for a decline in the 6% to 8% range, Setyan said in a note.

Unit-level margins of 12.2% in the quarter were also shy of the 15.1% the analyst expected, mostly due to higher "other" operating expenses that were partially offset by lower labor costs, he said. 

Same-store sales growth of 6.4% in July to date was above the estimated 3% to 5% growth range from the buy-side community, Setyan said. 

Digital sales now account for around 50% of the mix versus 61% in the second quarter as more dining rooms reopen, the analyst said.

But digital and off-premise sales continue to trend near March levels of around 70% to 80%, driven by continued traction in digital and loyalty, menu innovation, growing loyalty membership, higher marketing spend and market share opportunities, according to Wedbush. 

KeyBanc Says Chipotle In Early Stages Of Digital Growth

Chipotle has shown so far an "impressive" growth in its digital initiatives, but the company is merely in the early days of its "digital journey," Gonzalez said in a note.

Encouragingly, digital sales are sticky, and new customers are attracted to the brand through digital channels, the analyst said.

Chipotle has retained 70% to 80% of digital sales at a time when in-store sales recovered up to 50% from prior levels, he said.

Technology and digital "will provide an unlock" for future digital exclusive options, Gonzalez said.

Loyalty will prove to be a key beneficiary that allows the company to offer personalized marketing and better influence consumer behavior, according to KeyBanc. 

Raymond James On Chipotle Valuation Concerns

Chipotle deserves credit for returning to positive same-store sales, and management remains bullish on its long-term prospects, which include doubling its domestic footprint, Vaccaro said in a note.

But much of the company's outlook is already reflected in the stock's premium valuation of around 50 times P/E versus a historical range of 35 times to 50 times, the analyst said. 

As such, investors should be patient and wait for a more attractive entry point, according to Raymond James. 

CMG Price Action: Shares of Chipotle Mexican Grill were down 4.45% at $1,132.58 at last check Thursday. 

Related Link: What's Behind Chipotle Mexican Grill's Share Price Jump?

Photo courtesy of Chipotle. 

Posted In: Alton StumpBrian VaccaroCasual Fast FoodEric GonzalezFast FoodKeyBanc Capital MarketsLongbow ResearchNick SetyanRaymond JamesWedbushAnalyst ColorEarningsNewsRestaurantsAnalyst RatingsGeneral