by Will Ashworth | January 29, 2014 11:02 am
Chipotle Mexican Grill (CMG) reports Q4 earnings Thursday morning before the close, and Wall Street is expecting some of the most robust Chipotle earnings in the past two years. Good things are happening in Denver, but is it enough to keep CMG stock climbing higher?
That’s open for debate … but good Chipotle earnings certainly can’t hurt.
Chipotle stock is trading with 10% of its all-time high of $550.28, which was set in November, though CMG stock is down roughly 8% for the year-to-date. To keep pace with its three-year annualized total return of 29.5%, CMG needs to hit $637 by the end of 2014.
I’ll explore whether Chipotle can do it.
Analysts expect Chipotle earnings to increase 30% year-over-year to $2.53. On the sales front, it’s expected to boost revenues by 18% to $826 million. In October, CMG management called for mid-single-digit comparable restaurant sales growth in 2013; over the past four quarters, that number has averaged 4.1%. Meanwhile, in Q4 2012, its comparable store sales grew by 3.8%.
I’ll go out on a limb by suggesting this quarter’s comp growth will be 5.5%, or 220 basis points higher than a year earlier. If so, comp growth for all of 2013 will be 4.6%, or mid-single digits. Anything higher than 4.6% would be viewed as encouraging, and should help CMG stock move higher.
Three things are driving CMG stock at this point:
Chipotle expects to open between 180 and 195 restaurants in 2014. Across its 1,539 locations, it expects comparable restaurant sales growth in the low single digits this year, excluding the price increases it expects to implement in the middle of 2014. In October 2012, when CMG provided full-year guidance for 2013, it went with flat- to low-single-digit comparable restaurant sales growth.
Those were conservative in nature.
I think there’s a good chance Chipotle will deliver mid-single digits once more in 2014. If it does, I don’t think the premium valuation attached to CMG stock will be hurt very much. In fact, it might even see some expansion.
Unless Chipotle earnings lay an egg Thursday or the markets fall off a cliff, I think CMG stock will test its all-time high within the two to three months. I’d wait, however, until after earnings to do so.
Better safe than sorry.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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