Here’s Why We Have Revised Our Price Estimate For Chipotle Mexican Grill To $284
Chipotle Mexican Grill (NYSE: CMG) is struggling to grow revenues since the company’s reputation took a beating two years ago when its food was found contaminated with an E. coli virus. While the company took several measures to assure customers about its food safety, another isolated virus incident impacted it further. In Q3 2017 the company reported comparable sales growth of only 1% and revised its guidance of opening new restaurants to 135-150 (from an earlier estimate of around 200 restaurants). It’s much awaited “queso” launch also did not generate revenues as per expectations.
Given that the company is still struggling and a turnaround seems at least a couple of years away, we have revised our revenue growth estimates for the company. We now expect revenues to grow at the rate of around 8.5% in the next two years, compared to our earlier estimate of 10.5%. Post this period our revised estimate is not very significantly different form our earlier revenue growth estimate. We have also modified our estimate for the company’s profitability given that its food cost is likely to be higher in 2017 on the back of high avocado prices.
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Lowering the revenue estimate and a minor increase in expenses has impacted the valuation of Chipotle Mexican Grill leading to a revision in our price estimate.
Click here to analyze our revised estimates of growth in Chipotle’s number of restaurants.
Click here to analyze our revised estimates for growth in Chipotle’s average revenue per restaurant.
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