Up 11% Already This Year, Does Chipotle Stock Have More Room To Run After Q4 Results?

February 5th, 2024 by Trefis Team
-20.11%
Downside
3187
Market
2546
Trefis
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 fourth-quarter results on Tuesday, February 6. We expect CMG’s stock to see little to no movement with revenues and earnings matching the expectations in its fourth-quarter results. Chipotle’s growth is slowing, but still, its profitability is holding up well – thanks to raised prices. That said, the company’s balance sheet remains strong at $1.8 billion in cash, restricted cash, and investments, with no debt. It opened 62 new restaurants in the second quarter of which 54 had a Chipotlane (drive-thru) and it remains on track to open between 255 and 285 new restaurants this year with at least 80% including Chipotlane. CMG’s positive performance so far can be attributed to restaurant-level operating margin expansion, menu innovation, price increases, and good execution of the company’s digital strategies. Going forward, Chipotle expects comps in a mid to high-single-digit range driven by transaction growth in the upcoming fourth quarter.

CMG stock has seen extremely strong gains of 75% from levels of $1385 in early January 2021 to around current levels, vs. an increase of about 30% for the S&P 500 over this roughly 3-year period. However, the increase in CMG stock has been far from consistent. Returns for the stock were 26% in 2021, -21% in 2022, and 65% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that CMG underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could CMG face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

Our forecast indicates that Chipotle’s valuation is $2378 per share, almost in line with the current market price. Look at our interactive dashboard analysis on Chipotle Earnings Preview: What To Expect in Q4? for more details.

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(1) Revenues expected to come in line with the consensus estimates

Trefis estimates Chipotle’s Q4 2023 revenues to be around $2.5 Bil, in line with the consensus estimate. Chipotle saw an 11% y-o-y revenue growth in Q3 to $2.5 billion, as comp restaurant sales grew 5.0%. Much of this growth can be attributable to new locations. The company’s operating margin also came in at 16.0% in Q3, an increase from 15.1% in the same quarter last year. For the full year of 2023, we forecast Chipotle’s Revenues to be $9.8 billion, up 14% y-o-y.

The company’s management thinks there could one day be 7,000 Chipotle locations in North America, up from about 3,321 as of now. Moreover, Canada only has around 30 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 Q4 2023 earnings per share (EPS) is expected to come in at $9.73 per Trefis analysis, matching the consensus estimate. Restaurant-level margin of 26.3% increased about 100 basis points compared to last year in Q3. Consequently, the company’s diluted earnings per share soared 23% y-o-y to $11.32. 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 aligns with the current market price

Going by our Chipotle Valuation, with an EPS estimate of around $44.45 and a P/E multiple of 53.5x in fiscal 2023, this translates into a price of $2377.75, which is almost in line with the current market price. Chipotle’s steep valuation is higher than other popular restaurant stocks like the 26x P/E ratio for McDonald’s (NYSE: MCD) and 25x for Starbucks (NASDAQ: SBUX).

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.

Returns Feb 2024
MTD [1]		 Since start
of 2023 [1]		 2017-24
Total [2]
 CMG Return 3% 79% 558%
 S&P 500 Return 2% 29% 121%
 Trefis Reinforced Value Portfolio 1% 39% 614%

[1] Returns as of 2/5/2024
[2] Cumulative total returns since the end of 2016

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