Will Chipotle Surprise Next?

Chipotle Mexican Grill, Inc. CMG is set to report second quarter earnings Tuesday after the market closes. The Estimize EPS consensus, crowdsourced from 79 analysts, is $4.47, 5 cents higher than Wall Street. Last quarter's EPS was $3.88, and over the last three quarters, there has been ~50% YoY growth in EPS. EPS growth has remained positive YoY for the last eight quarters. The Estimize community is looking for a revenue figure of $1.223B, in-line with Wall and up 16% over the same quarter last year. For the last eight quarters, YoY revenue growth has remained at ~20%.

Rising labor and food costs are two factors that could lead to some disappointment this quarter for Chipotle's investors. Another impediment is Chipotle's valuation, as many analysts believe the company is overvalued. Chipotle is trading at 32 times the company's 12-month forward earnings, and valued much higher than its fast-casual peers.

Chipotle has faced price hike issues, due in part to the rise in states' minimum wage requirements. Chipotle's price hike was predicted to contribute 20 basis points growth to comparable store sales. However, since Chipotle's business is praised for its high quality, healthy, organic food, loyal customers are likely to forgive the price increase. The price hike could raise the average customer spending per visit for the rest of the year to $13.70, boosting the overall company revenue growth. Chipotle has also seen increased traffic trends due to its menu innovation and has achieved better operational efficiency. In fact, Chipotle became the first national restaurant to use only non-GMO ingredients, and its "Food with Integrity" program has increased the loyal customer base of health conscious consumers. In the beginning of the year, Chipotle even suspended purchases from one of its pork suppliers, as the supplier did not conform to animal standards. Even though this suspension led to pork being removed from the menu at several of its locations, Chipotle's reputation improved.