Chipotle’s Stock Up 50% Over Six Months. What’s Next?

After a large 50% growth over the last six months, at the current price of around $2101 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 – is fairly priced. CMG stock has increased from around $1405 to $2101 over the last six months, outperforming the broader indices, with the S&P rising about 14% over the same period. CMG’s stock growth can be attributed to Chipotle’s accelerated revenue growth this year. The burrito chain’s flexing pricing power is driving increased traffic to its stores even as it raises its prices during elevated inflation and in an uncertain economy. In fact, its operating profit has soared faster than sales in Q1 – thanks to its expanding operating margin. However, we believe that many factors could stall the company’s margin rebound in the coming quarters. An economic slowdown is a top concern, but the chain could also face fierce competition from McDonald’s, Domino’s, and other fast-food competitors in the drive-thru channels.

In Q1 2023, Chipotle’s revenue rose 17% year-over-year (y-o-y) to $2.4 billion, up from the 11% growth reported in Q4 2022 and almost 14% growth for the full year of 2022. This growth was driven by a 10.9% y-o-y increase in comparable-restaurant sales and 41 new restaurant openings – with 34 of those locations including a margin-boosting Chipotlane, a dedicated lane to pick up digital orders. Comparable-restaurant sales growth was notably helped by an impressive 22.9% y-o-y increase for in-restaurant sales. Additionally, Chipotle’s operating income rose 93.3% y-o-y in Q1. Consequently, Chipotle’s Q1 restaurant-level operating margin was 15.5%, up from 9.4% in the year-ago quarter and 13.6% in 2022’s Q4. This helped diluted earnings per share surge 88% y-o-y to $10.50. In the first quarter, in-restaurant sales were higher than digital orders due to normalizing consumer behavior.

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 $44.45. Given our revenues and EPS forecast changes, we have revised our Chipotle’s Valuation to $2117 per share, based on a $44.45 expected EPS and a 47.6x P/E multiple for the fiscal year 2023 – almost in line with the current market price.

For the full-year 2023, Chipotle expects to open between 255 and 285 new restaurants in 2023. Though Chipotle said between 10 and 15 of these openings will be relocations in order for some restaurants to get a new location that includes a drive-thru. Management said it expects Q2 and full-year comparable restaurant sales to increase at a rate somewhere in the range of mid-single-digits to high single-digits year over year. The company also reiterated its long-term goal of having 7,000 locations in North America, more than double the 3,224 stores Chipotle operates today. Furthermore, annual unit sales are expected to exceed $3 million in the future. Chipotle’s initiatives in the digitalization of stores, store growth, Chipotlane additions, and price increases have helped the company grow its top and bottom lines. Going forward, the company shouldn’t be forced to raise prices entirely to accomplish growth. An increase in store count and store volume should also certainly improve the company’s prospects in the longer term.

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.

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[1] Month-to-date and year-to-date as of 6/29/2023
[2] Cumulative total returns since the end of 2016