CMG Earnings Preview: What to Expect from Chipotle Mexican Grill in Q3 - The Globe and Mail

Chipotle Mexican Grill (CMG) is among the most popular companies on Wall Street. In addition to its strong brand presence, CMG stock has delivered market-crushing returns to shareholders.

Valued at a market cap of $82.23 billion, shares of Chipotle Mexican Grill went public in early 2006. Since then, CMG has returned more than 7,000% to shareholders, easily outpacing the S&P 500 Index's ($SPX) returns of 554%.

CMG stock's next key catalyst will be its upcoming quarterly results, due after the market closes next Tuesday, Oct. 29. Let’s see what analysts expect from the fast-casual restaurant giant in the September quarter.

Analysts tracking Chipotle Mexican Grill expect it to report revenue of $2.82 billion, with adjusted earnings per share (EPS) of $0.25, for Q3 of 2024. In the year-ago quarter, it reported revenue of $2.51 billion and EPS of $0.23. This indicates that CMG should increase sales by more than 10%, while earnings growth is forecast at 8.7%. Chipotle has beaten consensus earnings estimates in the last four quarters, and it will be interesting to see if this streak can continue.

In Q2 of 2024, Chipotle reported revenue of $2.97 billion, an increase of 18.2% year over year, driven by comp sales growth of 11.1% and transaction growth of 8.7%. Its restaurant-level margin increased by 140 basis points in the last 12 months to 28.9%, allowing the company to grow EPS by 36% to $0.34. Its digital sales accounted for 35% of the top line, and remains a key revenue driver going forward.

Earlier this year, Chipotle Mexican Grill faced social media backlash as customers accused the company of selling smaller portions in its burrito bowls. While Chipotle denied portion reductions, it confirmed that it would train employees to ensure customers are satisfied with the size of these bowls. However, this raises concerns about lower profit margins for CMG in the near term. For example, analysts expect EPS to grow by less than 11% in the last six months of 2024, compared to a compound annual earnings growth rate of 38.4% in the past five years.

Notably, Chipotle continues to gain market share, as evident by its growth in restaurant transactions across income levels. While consumer giants such as PepsiCo (PEP) and McDonald’s (MCD) are feeling the heat from sluggish spending among lower-income households, Chipotle benefits from a customer base tilted toward higher-income earners.

Chipotle opened 52 new company-owned locations and one new internationally licensed restaurant in the June quarter. It expects to open between 285 and 315 restaurants in 2024. During the Q2 earnings call, Chipotle projected that same-store sales would grow by a mid to high-single-digit percentage this year.

Despite a strong performance in Q2, CMG stock currently trades 13% below all-time highs due to the high-profile exit of its CEO Brian Niccol in August. Niccol took the helm at Chipotle in March 2018, and the stock rallied close to 800% over the next six years.

Brian Niccol led the company through a food-borne illness scandal, and also helped the restaurant chain successfully navigate the COVID-19 pandemic. Niccol has now taken the top job at struggling Starbucks(SBUX), sending CMG stock lower in the process.

Analysts tracking Chipotle Mexican Grill expect sales to rise 14.9% to $11.34 billion in 2024 and 13.8% to $12.9 billion in 2025. Comparatively, adjusted earnings are forecast to expand from $0.90 per share in 2023 to $1.30 per share in 2025.

Priced at 46x forward earnings, CMG stock is expensive, and might significantly underperform the broader markets if sentiment turns bearish.

Out of the 30 analysts covering Chipotle stock, 20 recommend “strong buy,” one recommends “moderate buy,” and nine recommend “hold.”

The average target price for CMG stock is $64.43, indicating an upside potential of 8.8% from current levels.

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