Rising 25% Year To Date, Will Q1 Results Drive Chipotle Stock Higher?

April 22nd, 2024 by Trefis Team
-19.60%
Downside
3167
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 first-quarter results on Wednesday, April 24. We expect CMG’s stock to trade lower with revenues and earnings missing the expectations marginally in its first-quarter results. The company’s stock is up 25% year-to-date. Chipotle’s strong financial performance and the recent stock split announcement have led to stock gains. Chipotle’s growth is slowing, but still, its profitability is holding up well – thanks to raising prices. CMG’s positive performance can be attributed to restaurant-level operating margin expansion, menu innovation, price increases, and good execution of the company’s digital strategies. For 2024, management expects comparable sales growth in the mid-single-digit range and 285 to 315 new restaurant openings. Chipotle has a thriving rewards program that facilitates digital ordering (made up 37% of revenue in 2023) and the company’s rewards program topped 36 million members in 2023.

Chipotle recently announced a 50-for-1 stock split. The stock split will be subject to shareholder approval at Chipotle’s annual meeting on June 6. If approved, shareholders on record as of June 18 will receive an additional 49 shares for each share held after market close on June 25. While the stock split won’t change the value of Chipotle’s business, it would bring current share prices down from nearly $2,870 (as of writing) to about $57. That means – for each share of Chipotle stock an investor owns, post-split shareholders will own 50 shares worth ~$57 each. This makes it more approachable for retail investors, and with more people able to afford shares, demand for the stock could rise.
CMG stock has seen extremely strong gains of 105% from levels of $1385 in early January 2021 to around $2870 now, 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 TM, 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 $2546 per share, almost 11% lower than the current market price. Look at our interactive dashboard analysis on Chipotle Earnings Preview: What To Expect in Q1? for more details.

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(1) Revenues expected to slightly come in below the consensus estimates

Trefis estimates Chipotle’s Q1 2024 revenues to be around $2.6 Bil, slightly below the consensus estimate. Chipotle saw a 14% y-o-y revenue growth in 2023 to $9.9 billion, as comp restaurant sales grew 7.9%. Much of this growth can be attributable to new locations. For the full year of 2024, we forecast Chipotle’s Revenues to be $11.4 billion, up 15% y-o-y.

The company’s operating margin expanded from 13.4% in 2022 to 15.8% in 2023 while the restaurant-level operating margin jumped from 23.9% in 2022 to 26.2% in 2023. The company opened 271 new locations (of which 88% featured Chipotlane drive-through) in 2023 and operated more than 3,400 restaurants as of the end of the year. However, it sees an opportunity for 7,000 restaurants in North America. In the U.S., Chipotle is fairly saturated in urban areas, but it has been expanding into suburbs as well as internationally, specifically in Canada. It also signed its first-ever franchise agreement with a Middle Eastern operator to open stores in Dubai and Kuwait. The international expansion will probably continue for a long time if its concept is successful with other cultures.

2) EPS is also likely to miss consensus estimates marginally

Chipotle’s Q1 2024 earnings per share (EPS) is expected to come in at $11.60 per Trefis analysis, missing the consensus estimate marginally. The company’s diluted earnings per share soared 38% y-o-y to $44.34 in 2023. 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 lower than the current market price

Going by our Chipotle Valuation, with an EPS estimate of around $54.21 and a P/E multiple of 47.0x in fiscal 2024, this translates into a price of $2546, which is almost 11% lower than the current market price. As of this writing, Chipotle trades at a P/E ratio of 67x – which is expensive in our view. That compares to a P/E ratio of 24x P/E ratio for McDonald’s (NYSE: MCD) and 23x for Starbucks (NASDAQ: SBUX). CMG stock has experienced an enormous surge since its bottom in October 2023 and has yet to experience any meaningful retracement.

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 Apr 2024
MTD [1]		 2024
YTD [1]		 2017-24
Total [2]
 CMG Return -1% 25% 660%
 S&P 500 Return -5% 4% 122%
 Trefis Reinforced Value Portfolio -8% -2% 598%

[1] Returns as of 4/22/2024
[2] Cumulative total returns since the end of 2016

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