Chipotle Mexican Grill (NYSE: CMG) Is A Buy Before Earnings

A Post-Pandemic Winner

Chipotle Mexican Grill (NYSE: CMG) has been in a multi-year rebound that has, quite frankly, years left to run. The rebound began with CEO Brian Niccol took over early in 2018, it began to gain momentum over the past year, and was turbo-charged by the pandemic. Niccol, a veteran of Taco Bell and lover of modern technology, had this fast-food chain positioned for organic growth via eCommerce/pick-up-lane channels so when the pandemic hit it was more than ready to go.

Now, with earnings just around the corner, there are a growing number of reasons to believe this stock is a buy. When earnings come they are likely to be strong and provide a catalyst for the market. Bank of America just raised its price target for those very reasons. According to them, the company has proven successful in the social distancing environment and warrants a higher multiple. "We find CMG's multiple as high but supported by a long-term DCF if the chain grows to 5k-6k stores and holds a mid 20% restaurant margin," says Bank of America.

Chipotle Mexican Grill Analysts: Bullish But Not Overwhelmingly So

The average analysts’ rating is bullish but the general consensus is more neutral than not. Of the 37 current ratings on Chipotle Mexican Grill 20 (including one bear) are only neutral on the stock. The ranks of neutral ratings include Bank of America despite its vote of confidence in the company’s performance. The consensus price target is near $1,100 (Bank of America’s target is $1,200) which makes the stock a bit over-valued going into the earnings release.

The consensus for 2nd quarter earnings is not good but there are a number of reasons to believe these estimates are too low. For one, Chipotle tends to beat consensus 90% of the time on the bottom line, about 70% of the time on the top, so there is history to consider. Add to this the fact the reopening and rebound have been stronger than anticipated and it is a near-certainty results will better the consensus. The question is how high and since more analysts have been decreasing estimates than raising them the chance of a significant beat is present.

Assuming Chipotle only meets the consensus for the quarter it will be set up to easily beat consensus for the year, a situation that can only lead to upward analysts revisions and higher share prices for the stock. Looking forward, the long-term growth outlook remains intact and is in fact stronger than it was pre-COVID. The two-year consensus for growth, from the pre to the post-COVID environment, is running in the 20% range for revenue and 37% range for EPS. What I want to point out is that this consensus does not fully factor in the company’s push to drive-through and its subsequent impact on revenue.

PS, the company just announced the 100th Chipotlane drive-through location and has hundreds more planned. In the first quarter of the year, sales through eCommerce channels increased more than 80% to 26.3% of revenue so expect to see strong numbers in this regard again.

Chipotle Mexican Grill Technical Outlook: Bullish, Waiting For Earnings

Chipotle Mexican Grills has posted one impressive rebound from its COVID-Correction bottom. The stock not only regained 100% of the loss, it surpassed its previous high to set new all-time highs. The stock is now extending its long-term rally with a market looking forward to strong earnings. Today’s open has the stock trading at a new all-time high already, if you are looking to buy this stock at a lower price, that ship may have already sailed. Investors waiting for the EPS release may find themselves wishing they hadn’t.