Chipotle Shares Hit New All-Time Highs: The Street Debates What's Next

Chipotle Mexican Grill, Inc. CMG reported better-than-expected second-quarter results highlighted by strong growth in digital sales. Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

BMO Capital Markets' Andrew Strelzik maintains an Underperform rating on Chipotle with a price target lifted from $620 to $640.

Piper Jaffray's Nicole Miller Regan maintains at Overweight, unchanged $824 price target.

KeyBanc Capital Markets' Eric Gonzalez maintains at Overweight, price target lifted from $780 to $860.

Wedbush's Nick Setyan maintains at Neutral, price target lifted from $750 to $780.

Stephens' Will Slabaugh maintains at Equal-Weight, price target lifted from $650 to $700.

Chipotle hit a new all-time high of $789.50 Wednesday and was up more than 5.3% on the day.

BMO: Concerns Remain

Chipotle showed multiple initiatives to drive growth are working, Strelzik wrote in a note. Digital sales rose 99% year-over-year and now accounts for 18.2% of total sales and separate lines for digital orders are integrated in nearly 2,000 locations.

The company remains in the early stages of realizing full benefits from various initiatives, so Strelzik said the strong comps of 10% in the quarter could sustain into the third quarter. Flow-through from better comps in the second quarter was "modest" and the company is expected to oversee an uptick in marketing spend.

Chipotle's fourth quarter represents a "more significant hurdle" as the company laps 2018's heavy promotional activity.

Chipotle's stock is also discounting around 50% of EPS growth through 2021 and it's difficult to model the company living up to these "lofty expectations," the analyst said.

Related Link: The Street Reacts To Chipotle's Q1 Receipt

Piper Jaffray: Digital And Marketing Strength

Chipotle's earnings showed an average unit volume of $2.099 million and 20.9% store-level margins, Miller Regan wrote. Total sales also rose 13.2% last year, in part due to growth in digital orders which typically have higher average check sizes. Other encouraging developments in digital include strength in the loyalty program and continued roll-out of a separate area for digital orders at two thousand locations.

Marketing and promotional activities appear to have "resonated well," which emphasizes a "reset" of Chipotle's cultural image is yielding drivers of current and future growth.

KeyBanc: $20 EPS In 2020 More Likely

Chipotle's report "did little to deter" from preventing the company earning at least $20 in EPS in 2020, Gonzalez wrote. This remains a bull case scenario and assumes same-store sales growth of 4% in 2018 accelerates to 8.5% in 2019 and comes in at 5% in 2020. The $20 in EPS is based on the company hitting its goal of 7% compounded annual growth in same-store sales over three years and two-year average restaurant margins of 22%.

Chipotle's stock is trading at 56 times 2019 EPS estimates and 43 times 2020 estimates. Gonzalez said this makes it among the most expensive within the entire restaurant universe but justified amid "sweeping changes" to management and internal initiatives.

Wedbush: Realistic Outlook

Chipotle's management lifted its 2019 same-store sales growth guidance from a mid-single-digit to a high-single-digit and the Street is likely to "settle" in the 8% to 8.5% range, Setyan wrote. Given the company's momentum in digital growth and strength in loyalty and menu innovation, the outlook looks to be achievable.

Beyond 2019, there is little risk to margin growth in 2020 as food inflation fears related to pork is overblown as it represents less than 2% of the entire basket. Setyan said the second quarter likely marks a peak in avocado costs and this could shift to a tailwind in terms of cost of goods sold into 2020.

Stephens: Sit On The Sidelines

Chipotle showed yet again an acceleration in same-store sales growth as the mix of digital sales nearly doubled, Slabaugh wrote. Management has earned a reputation of allocating investments to the "right growth initiatives" which should help spur outperformance versus the overall restaurant industry.

The case for investing in Chipotle's stock at current levels would require the company to show consistent 8% or more comps for at least the next two years, the analyst said. While this outlook is possible, investors may want to side on the sidelines to wait for a better entry point.

Photo credit: Miosotis Jade (Own work), via Wikimedia Commons

Posted In: Andrew StrelzikBMO Capital MarketsCasual Fast FoodEric GonzalezKeyBanc Capital MarketsNick SetyanNicole Miller ReganPiper JaffrayStephensWedbushWill SlabaughAnalyst ColorEarningsNewsGuidancePrice TargetRestaurantsTop StoriesAnalyst RatingsGeneral