[Updated 02/16/2021] Chipotle Update
After rallying 82% since the end of 2019, Chipotle Mexican Grill (NYSE:CMG) has moderate upside in the near term. CMG’s stock grew from $837 at the end of 2019 to near $1528 now, compared to the S&P 500 which gained 22% since the end of 2019. The company has seen revenue and earnings rising over recent years. Our dashboard ‘Chipotle’s Stock: 2007-08 vs. 2020 Crisis Comparison‘ has the underlying numbers.
During the Covid-19 crisis, CMG saw its revenue rise by 7% in 2020 as lockdowns forced the company to shut down dine-ins but was offset by a huge increase in digital sales. In FY 2020, CMG beat consensus estimates for revenue at $6 billion, up 7% y-o-y, and earnings per share recorded at $12.74 compared to $12.62 in the same period of the previous year. Further, the company reported $664 million of cash inflows from operating activities for the first nine months.
We expect Chipotle‘s revenues to rise by 21% to $7.2 billion for 2021. Further, its net income is likely to rise to $543 million, increasing its EPS figure to $19.64 in 2021, which coupled with the P/E multiple of around 83x will lead to Chipotle’s valuation around $1643, which is 7.5% higher than the current market price.
[Updated 03/24/2020] Chipotle’s Losses Have Tracked The S&P 500 So Far, But Can It Outperform Post Coronavirus Scare?
Chipotle Mexican Grill’s (NYSE:CMG) stock declined by about 8% between 8th March 2020 and 24th March 2020 (vs. an 18% decline in the S&P 500), and the stock is down 23% since 31st January after the WHO declared a global health emergency in light of the coronavirus spread (vs. about 27% decline in the S&P 500 since then).
Looking back at the 2008 financial crisis, we see CMG’s stock declined from levels of almost $123 in October 2007 (the pre-crisis peak) to below $55 in March 2009 (as the markets bottomed out) – implying CMG stock lost over 55% of its value from the approximate pre-crisis peak. This marked a slightly higher drop than the broader S&P, which fell by as much as 51%.
Notably, CMG recovered strongly post the 2008 crisis, to levels of about $88 in early 2010 – rising more than 61% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period. Given how closely the company’s stock has tracked the S&P 500 this time around too, it will very likely outperform the broader market index over the coming months.
On Monday, 9th March, the stock market entered into a phase of extreme volatility, with two significant sell-offs on Monday and Thursday being separated by days of partial recoveries. Overall, there have been two distinct trends driving the recent sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production.
CMG stock has suffered as states and countries are on lockdown. People are not meeting friends and colleagues or going out with family for lunch or dinner. Many restaurants and food outlets have temporarily pulled down their shutters, and the ones still open are operating in take-out-only mode. Besides lower demand, supply chains across the world have also taken a hit – leading to lower sales. We believe Chipotle’s Q1 and Q2 results will confirm this reality with a drop in their revenue – more than 95% of which comes from North America.
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