Chipotle Earnings Show Impressive Growth, But Fully Valued at $320
Chipotle (NYSE:CMG) reported strong Q3 results beating analyst estimates with a 24% increase in revenues. The growth was driven by new restaurant openings and increased traffic in the quarter. The earnings release was successful in generating a positive investor response with Chipotle’s share price touching $331 today after yesterday’s close of $308. Menu price increases implemented between March and August positively affected the top-line growth at Chipotle. It didn’t deter loyal customers from visiting Chipotle outlets. Chipotle also reported impressive 11% increase in comparable restaurant sales this quarter. Chipotle competes with mostly cheaper alternatives in the fast food industry such as McDonald’s (NYSE:MCD), Burger King, Pizza Hut and Papa John’s.
We have revised our price estimate for Chipotle to $321, implying a slight discount to the current market price.
See our complete analysis for CMG stock here
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Chipotle on the Go!
- Chipotle opened 32 restaurants in Q3 which contributed significantly to this quarter’s impressive revenue growth. Chipotle has plans to open approximately 150-160 restaurants in the coming year.
- We believe that in spite of increasing food costs which were 33.1% of sales, representing an increase of 250 bps, Chipotle strong Q3 results are commendable. Rising commodity costs is a serious concern faced by restaurant chains globally and Chipotle has historically avoided raising prices to offset these cost pressures, though it is now starting to do this on a limited basis.
- Chipotle’s fresh and healthy food offerings together with specialization in a niche food segment has been successful in driving traffic.
- This quarter, Chipotle also tried a new concept and launched ShopHouse Southeast Asian Kitchen, restaurant based on Asian cuisine. The resutaurant is based in Washington D.C. See our note Chipotle Explores New Asian Food Concept.
We believe Chipotle has been successful so far this year in its strategies to handle cost increases, restaurant openings and drive customer traffic. We will watch how its Asian restaurant does and whether or not it will look to roll this out on a larger scale. So far it looks like Chipotle is keen on innovation and expansion indicating plenty of future growth ahead.
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