Chipotle Stock Will NEVER Be the Same (CMG)

Advertisement

chipotle stock - Chipotle Stock Will NEVER Be the Same (CMG)

Source: Mike Mozart Via Flickr

Chipotle Mexican Grill Inc. (NYSE:CMG) is falling again after earnings showed what most of us have feared: It will take years for Chipotle stock to rebound from the company’s health scares.

Chipotle stock cmg image

If it can rebound at all.

Quarterly sales for CMG were down 23.6% year-over-year, to $998 million, and net income fell to $25.6 million (87 cents per share) from $140.2 million ($4.45 per share) a year ago, despite the company opening 45 new restaurants. Both figures fell shy of analyst estimates for $1.05 billion in revs and 90 cents per share in profits. The disappointments dragged Chipotle down a couple percent in Friday’s trading.

Retailers, especially in the food business, usually get just one chance to be a hot, speculative growth issue, and CMG has had its run. From late 2012 to mid-2015 the shares tripled, to a high of about $750 per share, before reports of e.Coli poisoning at its burrito palaces sent them off the cliff.

Chipotle stock will open Friday around $420.

Chipotle Stock Even Makes Panera Look Cheap

Even at that price, however, Chipotle’s stock price is out of line with other fast-food and fast-casual restaurants.

Take Panera Bread Co. (NASDAQ:PNRA). The current CMG market cap of over $12 billion represents almost 3 times sales, based on last year’s revenue of $4.5 billion, and it trades at 40 times earnings. By contrast, PNRA — which benefited directly from Chipotle’s troubles, and advertised against it with ads like Clean Food — sells at a P/E multiple of 34, with a $5.1 billion market cap supporting $2.68 billion in sales.

It is true that Panera is presently on pace to deliver only 5% growth on its top line, but at least it’s on pace to deliver any growth. Chipotle’s revenues and same-store sales continue to be on pace to shrink.

Chipotle Is Still Fast (Casual) Food

One advantage Chipotle retains is that it’s fast casual/fast food. A simple, limited menu of meats, rice, beans and condiments, available in just a few ways, means a diner approaching the counter can be out the door with a full meal in less than five minutes. The only chain that has comparable speed is privately-owned Chick-Fil-A, which keeps its sandwiches in steam tables.

But that was never the CMG sales pitch.

Chipotle was sold as a fast casual chain, where diners could spend quality time with healthy “real” food, at a price point of $10 to $15 per meal. In response to its health scare, CMG was forced to back away from that real food promise, centralizing food production on ingredients like guacamole. Getting confidence back is going to be a long, hard slog.

Chipotle’s Marketing Needs a Refresh

If the marketing is out of step with its reality, Chipotle is also lacking someone who can clean it up quickly. Chief Marketing Officer Mark Crumpacker was arrested on a drug charge last month and was placed on leave, and a summertime loyalty program meant to re-launch the chain with millennials isn’t working.

Getting sales back to the $4.5 billion level enjoyed in 2015 is going to take years, a Morgan Stanley analyst estimates, and I agree with him.

Chipotle needs an entirely new ad campaign, and new marketing leadership.

Chipotle’s Real Peers Still Cheaper

It’s a point so important, it has to be stressed twice — CMG is expensive, especially for what it promises now.

You no longer compare Chipotle stock to hot, speculative growth stocks like Shake Shack Inc (NASDAQ:SHAK), whose sales nearly doubled last year and carry a P/E of 119, as it works to expand nationwide from its New York base.

You compare it to its peers, to fast food or fast casual chains like Panera, to Popeyes Louisiana Kitchen Inc (NASDAQ:PLKI), which sells at 30 times earnings, or to mature restaurant chains like Darden Restaurants, Inc. (NYSE:DRI), owner of Olive Garden, which sells at 24 times earnings and has a market cap of $7.9 billion against $6.9 billion in trailing year revenue.

Once investors realize what CMG really is … Chipotle stock is heading to $300.

Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he did not hold a position in any of the stocks mentioned here.

More From InvestorPlace

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2016/07/chipotle-stock-never-same-cmg/.

©2024 InvestorPlace Media, LLC