Q2 Preview: Analysts Optimistic on Chipotle (CMG) as Price Hikes May Have Offset Rising Food Costs

Investors are buying shares of Chipotle Mexican Grill (NYSE: CMG) Tuesday ahead of the company's second-quarter earnings report, due out after the market close later. The stock last traded at $332.60, up 1.5 percent for the session.

The Street sees Chipotle posting quarterly earnings of $1.68 per share on sales of $558.3 million. Last quarter, earnings came in at $1.46 on sales of $509.4 million; in the second quarter of 2010, EPS totaled $1.46 on sales of $466.8 million.

Bloomberg data has Wall Street analysts mostly mixed on Chipotle into the quarter: 10 firms have "buy" ratings on the stock, 14 have a "hold" and three have a "sell." Analysts' price targets on Chipotle shares range from $198 to $365.

The stock has risen in almost a straight line since the beginning of 2011, gaining nearly 60 percent over the course.

Analyst Commentary:

• Goldman Sachs - Calls the stock "undervalued" given expected high single-digit comps over the second half of this year and pricing which the firm believes will offset recent food inflation. The firm recently revised full year estimates across the board: 2011 from $7.05 to $6.86, 2012 from $9.67 to $9.83, 2013 from $12.40 to $12.87. Maintains Buy rating and a $365 price target.
  
  
• Deutsche Bank - On July 18th raised estimates and its price target "on slightly higher SSS and margin assumptions as we adjust our model for earlier than expected menu pricing." Maintains Q2 EPS estimate of $1.65, FY11 moves from $6.61 to $6.69 and FY12 moves from $8.13 to $8.23. Maintains Hold, price target raised from $270 to $300.
  
  
• DA Davidson - "We remain confident that Chipotle has significant pricing power and expect the price increases to be accretive to comp store sales." Looking for quarterly EPS of $1.70 and 19 percent year-over-year growth in sales to $555.3 million. Sees restaurant level margins at 26.3%. Believes traders should look for color on: food costs and product availability, details of planned rollout of additional price increases, insight in the labor investigation and the possible implementation of a loyalty program. Maintains Buy and $360 price target.

Stay tuned to either our Full Feed or our Earnings category to see a breakdown of the Chipotle earnings within seconds of the release.

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