Chipotle Mexican Grill, Inc.(NYSE:CMG) is scheduled to release its fourth-quarter earnings report after the close of trading on Tuesday. The company has attracted considerable attention recently for its decision to pull pork from its menu at several locations due to supplier quality issues.
However, Wall Street remains unphased by the reports, with investors and analysts alike betting bullish on Chipotle stock.
Chipotle is expected to post a quarterly profit of $3.77 per share on revenue of nearly $1.1 billion. Historically, the company has bested the consensus estimate in three of the past four quarters, leading some analysts to set their targets a bit higher.
In fact, EarningsWhisper.com reports that Chipotle’s fourth-quarter whisper number comes in at $3.83 per share.
What’s more, data from Thomson/First Call reveals a wealth of bullish sentiment, with 19 of the 28 analysts following Chipotle stock rating it a “buy” or better, versus 11 “holds” and no “sell” ratings. There is still room for improvement, however, with the 12-month consensus price target of $742 representing a mere 3.8% premium to Thursday’s close.
Turning to the options pits, short-term traders are growing more bullish on CMG, especially where earnings are concerned. For instance, the February/March put/call open interest ratio comes in at a reading of 0.99, which, despite indicating near parity for puts and calls, is lower than two-thirds of all such readings taken in the past year.
Furthermore, the weekly Feb 6 series put/call open interest ratio comes in even lower at 0.74. In other words, short-term options traders have rarely been more optimistic in their expectations for Chipotle stock.
Click to Enlarge Overall, weekly Feb 6 implieds are pricing in a potential post-earnings move of about 7% for Chipotle stock. This places the upper bound in record-high territory at $766.31, while the lower bound lies at $663.69, just above support at CMG’s 10-day moving average.
2 Trades for Chipotle Stock
Call Spread: Despite Chipotle stock trading in all-time high territory, the shares appear to still have room to run. Those traders looking to jump on the bullish bandwagon might want to consider a Feb $712.50/$735 bull call spread.
At last check, this spread was offered at $9.26, or $926 per pair of contracts. Breakeven lies at $721.78, while a maximum profit of $13.22, or $1,322 per pair of contracts, is possible if CMG closes at or above $735 when February options expire.
Put Sell: Alternately, if you are willing to take a risk and bet that Chipotle stock can continue its run, a weekly Feb 6 series $650 put sell has a good chance of finishing out of the money when these options expire at the end of next week. After the close last night, the Feb $650 put was bid at $3.89, or $389 per contract.
On the upside, you keep this premium as long as CMG stock closes above $650 when Feb 6 series options expire at the end of next week. On the downside, should CMG trade below $650 ahead of expiration, you could be assigned 100 shares for each Feb $650 put sold at a cost of $650 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
