Chipotle’s Q3 Earnings Preview: What Are We Watching?

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CMG: Chipotle Mexican Grill logo
CMG
Chipotle Mexican Grill

Chipotle Mexican Grill stock (NYSE: CMG), a fast-casual restaurant chain that focuses on fresh and organic ingredients in burritos, salads, and more, is scheduled to report its fiscal third-quarter results on Tuesday, October 25. We expect CMG’s stock to see little to no movement due to revenues and earnings coming in line with the expectations in its third-quarter results. Chipotle has continued to grow its business at a robust pace even in the face of a pandemic and the current inflation. Thanks to a strong digital presence, the company has continued to post healthy sales and profitability growth in the first half of 2022 as well, which is a big step in the right direction for the popular Tex-Mex chain. For the first six months of 2022, Chipotle’s revenues grew 16% year-over-year (y-o-y) to $4.2 billion. In addition, the company was able to limit expense growth below the increase in revenue, allowing net income to grow 33% over this period to $418 million. Going forward, Chipotle expects same-store sales to increase to mid-to-high single-digits in the upcoming Q3 earnings, which would be a sharp slowdown compared to recent quarters.

Our forecast indicates that Chipotle’s valuation is $1565 per share, which is in line with the current market price. Look at our interactive dashboard analysis on Chipotle Earnings Preview: CMG Stock Likely To Trade Flat? for more details.

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(1) Revenues expected to be in line with consensus estimates

Trefis estimates Chipotle’s Q3 2022 revenues to be around $2.2 Bil, in line with the consensus estimate. Chipotle saw 17% y-o-y growth in revenues in Q2, while other discretionary food chains have struggled. Tough comparisons have resulted in a mild slowdown, with same-store sales increasing 10.1% in the second quarter versus 31.2% in the prior-year period. That said, the company’s pricing power is somewhat helping it diminish the impact of higher operating and input costs. In addition, its digital ordering system now accounts for 39% of all food and beverage sales. Chipotle spruced up its mobile-ordering app and its partnership with third-party delivery specialists. The business will be able to penetrate different markets by experimenting with new store formats and digital-only outlets. The company’s momentum should allow it to continue expanding in North America. For the full year of 2022, we forecast Chipotle’s Revenues to be $8.9 billion, up 17% y-o-y.

The company’s management thinks there could one day be 7,000 Chipotle locations in North America, up from 3,052 today. The company expects to open between 235 and 250 restaurants in 2022 (including 10-15 relocations), so it continues to expand steadily. Moreover, Canada only has 28 Chipotle restaurants, and the expansion potential is significant. There are also 12 restaurants in the UK, as well as a few takeout-only restaurants in France and Germany. The expansion will probably continue for a long time if its concept is successful with other cultures.

2) EPS is also likely to match consensus estimates

Chipotle’s Q3 2022 earnings per share (EPS) is expected to come in at $9.22 per Trefis analysis, matching the consensus estimate. In Q2, the company’s store-level operating margin increased 70 basis points y-o-y to 25.2%. This helped diluted earnings per share soar 40% y-o-y to $9.25 over the same period. It should be noted that Chipotle’s highest-margin sales are digital orders, so momentum on this front serves the business well for continued profit growth in the long run.

(3) Stock price estimate appropriately priced to current market price

Going by our Chipotle Valuation, with an EPS estimate of around $33.03 and a P/E multiple of 47.4x in fiscal 2022, this translates into a price of $1564, which is only 2% higher than the current market price. That said, the company’s stock appears appropriately priced at the current time. Chipotle’s steep valuation is higher than other popular restaurant stocks like the 31x P/E ratio for McDonald’s (NYSE: MCD) and 24x for Starbucks (NASDAQ: SBUX). With shares of Chipotle carrying a higher multiple and rising over 450% over the past five years, optimism looks to be fully priced right now.

It is helpful to see how its peers stack up. CMG Peers shows how Chipotle’s stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

With inflation rising and the Fed raising interest rates, Chipotle has fallen 12% this year. Can it drop more? See how low can CMG stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 CMG Return 2% -12% 307%
 S&P 500 Return 2% -23% 64%
 Trefis Multi-Strategy Portfolio 0% -27% 190%

[1] Month-to-date and year-to-date as of 10/21/2022
[2] Cumulative total returns since the end of 2016

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