Chipotle Stock Looks Attractive at $1552

After a 5% decline over the last six months, at the current price of around $1552 per share, we believe Chipotle Mexican Grill stock (NYSE: CMG), a fast-casual restaurant chain that focuses on fresh and organic ingredients in burritos, salads, and more – could see modest gains. CMG stock has declined from around $1630 to $1552 over the last six months, almost in line with the broader indices, with the S&P falling about 3% over the same period. CMG’s stock decline can be attributed to investors’ concern about rising food costs. Chipotle is at a slight disadvantage to other major fast-food companies as it serves fresh ingredients. The costs for avocados, taco shells, and beef have, in particular, increased in price in FY 2022.

But, it is worth mentioning that Chipotle has remarkable store economics. Its average restaurant sales rose 7% year-over-year (y-o-y) to $2.8 million in Q4 2022, despite adding 100 new restaurants over the same period – illustrating that the additions are not cannibalizing existing locations. In Q4, the company’s sales increased 11% year-over-year (y-o-y) to $2.2 billion in the fourth quarter of 2022. However, its comps increased by 5.6%, which represents a slowdown from previous quarters. Comparable sales are in a decelerating trend after CMG reported a 10.1% comp for Q2 and 7.6% in Q3.

Despite the increase in CMG’s input food costs, the firm’s restaurant margin expanded 380 basis points in Q4, to 24.0% of sales – thanks to the pricing power that the company holds. In FY 2022, the company increased prices by a whopping 13%. The year before that it increased prices by 8%. CMG’s fourth-quarter operating margin also increased from 8.1% in 2021 to 13.6% in 2022. This improvement was attributed to the benefit of sales leverage, as well as lower delivery fees associated with a lower volume of delivery transactions. Consequently, its adjusted earnings per share (EPS) of $8.29 in Q4 2022 increased from $5.58 in Q4 2021.

We have updated our model following the Q4 release. We forecast Chipotle’s Revenues to be $9.8 billion for the fiscal year 2023, up 14% y-o-y. Looking at the bottom line, we now forecast the earnings per share to come in at $42.19. Given our revenues and EPS forecast changes, we have revised our Chipotle’s Valuation to $1658 per share, based on a $42.19 expected EPS and a 39.3x P/E multiple for the fiscal year 2023 – almost 7% higher than the current market price.

While CMG stock looks poised for more gains in the future, it is helpful to see how its peers stack up. Check out how Chipotle’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

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.

[1] Month-to-date and year-to-date as of 2/23/2023
[2] Cumulative total returns since the end of 2016