Trading Strategies For Chipotle Mexican Stock Before And After Q4 Earnings

Zinger Key Points
  • Analysts, on average, estimate Chipotle will report earnings per share of $8.90 on revenues of $2.23 billion.
  • Chipotle is trading in a steep uptrend, making a consistent series of higher highs and higher lows.

Chipotle Mexican Grill, Inc CMG was trading near-flat on Tuesday heading into the print of its fourth-quarter financial results after the market closes.

When Chipotle printed mixed third-quarter earnings on Oct. 19, the stock slid almost 7% the following day and an additional 7.84% over the 10 trading days that followed.

For the third quarter, Chipotle reported revenue of $2.22 billion, which missed the $2.23-billion consensus estimate. The company reported earnings per share of $9.51, beating a consensus estimate of $9.16.

For the fourth quarter, analysts, on average, estimate Chipotle will report earnings per share of $8.90 on revenues of $2.23 billion.

Ahead of the event, Oppenheimer analyst Brian Bittner maintained an Outperform rating on Chipotle and raised the price target from $1,725 to $1,875.

From a technical analysis perspective, Chipotle’s stock looks bullish heading into the event, having settled into an uptrend pattern on the daily chart. It should be noted that holding stocks or options over an earnings print is akin to gambling because stocks can react bullishly to an earnings miss and bearishly to an earnings beat. A company’s guidance for subsequent quarters, which is often provided during a conference call, can also heavily affect a stock’s direction.

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The Chipotle Chart: Chipotle reversed into a steep uptrend on Jan. 5 and has surged about 27% since that date. On Feb. 2, the stock bumped into a resistance zone near $1,705 and rejected from the area. Over the last three trading days, Chipotle has attempted to regain that level as support but failed.

  • If Chipotle enjoys a positive reaction to its earnings print and bursts up through that level, the stock could squeeze higher as it continues in its uptrend. If that occurs, bullish traders who aren’t already in a position may choose to wait for a pullback before entering.
  • A pullback is likely to come over the next few trading days because Chipotle hasn’t printed a higher low within its uptrend since Jan. 19, when the stock retraced to the 200-day SMA and reversed course from the $1,490.70 level. A retracement is also likely to take place soon because the stock’s relative strength index is measuring in at about 75%, putting Chipotle in overbought territory.
  • If Chipotle suffers a bearish reaction to the earnings print, bullish and bearish traders will want to see if the stock reverses course before printing a lower low. If Chipotle falls under $1,490, the uptrend will be negated and a downtrend could be in the cards.
  • Chipotle has resistance above at $1,754.56 and $1,798.41 and support below at $1,705.17 and $1,638.33.

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