Market Overview

Chipotle Mexican Grill Earnings Preview: Double-Digit EPS, Sales Growth Expected

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Chipotle Mexican Grill (NYSE: CMG), whose shares are trading near an all-time high, is scheduled to report first-quarter 2012 results tomorrow, April 19, after the closing bell.

Chipotle has been raising its prices this year, which investors hope will lead to stronger margins. The company has enjoyed double-digit year-over-year percentage revenue growth for the past four quarters, and its net income has increased for three consecutive quarters. The fast casual restaurant operator has grown revenues and earnings every year of the past decade by opening additional restaurants.

Expectations

Analysts predict that Chipotle will post per-share earnings of $1.93 for the quarter and say that revenue totaled $630.6 million. In the same quarter of last year, the company reported $1.46 per share and $509.4 million in sales. The EPS estimate is two cents higher than it was 60 days ago. But note that Chipotle's EPS have fallen short of analysts' expectations -- by just a few pennies per share -- in two of the past four quarters.

In the fourth-quarter report, Chipotle reported net income of $57.5 million, or $1.81 per share. That was up 23.7% from the previous year but fell short of the consensus estimate of $1.83. Revenue also rose 23.7% year over year to $596.7 million, in line with analysts' expectations. The company also said it opened 67 restaurants in the quarter and plans to open 155 to 165 new restaurants in 2012.

Looking ahead, analysts so far expect to see sequential and year-over-year growth of both per-share earnings and revenues in the current quarter. At this point, the full-year forecast has EPS up 22.2% from the previous year and revenue 21.5% higher.

The Company

Denver-based Chipotle Mexican Grill operates more than 1,200 fast-casual, fresh Mexican food restaurants in the United States, Canada and England. It also operates the ShopHouse Southeast Asian Kitchen. The company is known for using high-quality raw ingredients and classic cooking methods, and its distinctive interior design and claim to being mindful of the environmental and societal impact of its business. Chipotle was founded in 1993, and it now is a member of the S&P 500 and sports a market cap of $13.7 billion.

Competitors include BJ's Restaurants (NASDAQ: BJRI), Buffalo Wild Wings (NASDAQ: BWLD) and Panera Bread (NASDAQ: PNRA). BJ's reported better-than expected EPS and year-over-year sales growth of nearly 30% in its most recent quarter. The first-quarter forecast for the other two calls for double-digit percentage growth of earnings and revenue. Buffalo Wild Wings and Panera are both scheduled to report April 24.

See also: Buffalo Wild Wings Surprises the Street; Panera Hit by Profit Taking

During the three months that ended in March, Chipotle offered free burritos for Earth Day, released its first national commercial during the Grammys, announced a share buyback program, and its shares kept hitting new multiyear highs.

See also: Chipotle Board Authorizes Buyback of $100m Shares

Performance

Chipotle's long-term earnings per share growth forecast is 22.2%. Its return on equity is 23.2% and the operating margin is higher than the industry average. But the P/E and PEG ratios are higher than the industry averages. And short interest is 7.8% of the float. Twelve of 29 analysts who follow the stock rate it a Buy or Strong Buy. The share price has outstripped their mean price target, but it is about 14% less than the highest price target.

See also: Deutsche Bank Raises PT to $480 on Chipotle Mexican Grill

The stock is about 28% higher than at the beginning of the year, as well as more than 52% higher than a year ago. Shares have pulled back from the 52-week high on Friday. The price is well above the 50-day and 200-day moving averages. Year to date, the stock has outperformed the competitors mentioned above, as well as McDonald's (NYSE: MCD) and the broader markets.

ACTION ITEMS

Bullish: Investors interested in exchange traded funds invested in Chipotle might want to consider the following trades:

  • PowerShares Dynamic Leisure & Entertainment (NYSE: PEJ) is more than 17% higher year to date.
  • PowerShares DWA Technical Leaders (NYSE: PDP) is more than 15% higher year to date.
  • Consumer Discretionary Select Sector SPDR (NYSE: XLY) is more than 15% higher year to date.
  • Vanguard Mid-Cap Growth ETF (NYSE: VOT) is more than 14% higher year to date.
Bearish:

Traders may prefer to consider these alternative positions in the restaurant industry:

  • Ruth's Hospitality (NASDAQ: RUTH) is up more than 49% year to date.
  • Jamba (NASDAQ: JMBA) is up about 45% year to date.
  • Frisch's Restaurants (NYSE: FRS) is up more than 44% year to date.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.
 

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