Chipotle Sets New Record as Street Cheers Sales Momentum

(Bloomberg) -- Chipotle Mexican Grill Inc. shares hit a new record high on Wednesday as analysts applauded the latest results where same-store sales increased the most in two years.

“This quarter appears to have threaded the needle, beating consensus and hitting buy-side expectations,” Morgan Stanley analyst John Glass said, adding that some investors feared that expectations had gotten ahead of the stock.

The 10% gain in comparable sales growth marks the biggest year-over-year increase since the first quarter of 2017. Per-share earnings, while handily topping the average Street estimate, were crimped by spiking avocado prices, which are expected to subside.

The sentiment expressed by Morgan Stanley is broadly shared by analysts, including BTIG’s Peter Saleh, who said that digital, delivery, menu innovation and stronger marketing are all dovetailing to fuel the acceleration in same-store sales.

“Chipotle is firing on all cylinders,” he said.

The shares rose as much as 5.4% on Wednesday to $779.27, above the previous record high of $765.99 from July 18.

Here’s what Wall Street is saying:

SunTrust Robinson Humphrey, Jake Bartlett

Chipotle’s continued comparable sales momentum provides “confidence in a continued strong” comp. recovery, driven by digital sales, menu innovation, improving throughput, rewards program benefits and increased marketing spend.

“If avocado prices fall to 1Q19 levels and stay there in 2020, our rough estimate is that ’20 EPS could be boosted by ~$0.80.”

Chipotle can combat any increased inflation with supply chain efficiencies.

Rates buy, boosts price target to $815 per share from $780.

Bernstein, Sara Senatore

Chipotle’s 10% comparable sales gain hit the “high end of whispers.”

Margins would have levered ~250+ basis points excluding avocado inflation and deferred revenue, “implying better order-ahead margins are offsetting pressure from delivery.”

Senatore also sees additional cost-saving opportunities in the supply chain during the second half.

While the stock is trading at an “elevated multiple on depressed earnings,” shares look attractive assuming “a more normalized margin.”

Maintains rating at outperform, with a price target of $820.

Morgan Stanley, John Glass

“The story remains the same”

“Best-in-class, traffic-led comps were complemented by margin expansion that withstood withering avocado inflation, and there is an ongoing narrative of top-line drivers”

However, Glass’s full-year EPS estimates doesn’t increase “materially” due to higher expenses, including food costs, labor and G&A.

“While this quarter gave investors no reason to sell the stock, neither is it any cheaper than it was prior to the quarter.”

Rates equal-weight, raises price target $706 from $700.

Telsey Advisory Group, Bob Derrington

“High performance; high expectations; high valuation.”

The stock’s “frothy valuation makes CMG a difficult investment proposition” even as Chipotle CEO Niccol and his team continue to deliver “considerable improvements.”

Rates market perform, raises price target to $750 from $700.

Wedbush, Nick Setyan

“Valuation keeps us sidelined” even after another solid quarter and outlook.

The company’s 2019 comparable sales forecast is “realistic” and there’s “little risk to margin expectations through 2020.”

Rates neutral, price target to $780 from $750.

What Bloomberg Intelligence says:

“Chipotle’s strong 2019 same-store sales growth will be fueled by impressive digital order growth, delivery, improved operations, the loyalty program and increased TV and social media marketing, in our view.”

--Michael Halen, consumer products analyst
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To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Will Daley

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