A 'Bravocado Performance in Q2': Chipotle Mexican Grill (CMG) Gains as Profit Tops Expectations, Analysts Bulled Up and Raise PTs

July 21, 2021 7:53 AM EDT
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Shares of Chipotle Mexican Grill (NYSE: CMG) are trading about 5% in the green in pre-open Wednesday after the company delivered a very strong Q2 performance.

Chipotle recorded earnings per share (EPS) of $7.46 per share to easily top the $6.52 expected from market analysts. Sales for the quarter came in at $1.89 billion to top the Street’s expectations for $1.88 billion.

The company said that higher menu pricing and lower beef prices contributed to lower better-than-expected Q2 performance. Overall, net sales rose 38.7% to $1.89 billion as same-store sales rose 31.2%.

"Chipotle's second quarter results highlight the strength of our brand and our people, as we demonstrated growing momentum in the business," said Brian Niccol, Chairman and CEO, Chipotle.

"We remain confident in our key growth strategies and believe they will help us achieve our next goal of $3 million average unit volumes with industry leading returns on invested capital that improve as we continue to add Chipotlanes. Strong restaurant level economics combined with significant restaurant growth should allow us to optimize earnings power for many years to come."

Chipotle said it opened 56 new locations while it closed 5 restaurants in Q2. The company is projecting same-store sales growth in the low-to-mid double digits.

Cowen analyst Andrew Charles said the company delivered a “bravocado” performance in Q2 to prompt him to hike the price target to $2,080.00 per share. CMG is “Top Pick” at Cowen.

“We were pleased with 2Q same store sales of 31.2% that fell in between our Street-high 32% estimate and 30% Consensus Metrix (CM). Importantly, performance has accelerated in July as the company holds onto digital gains made over the last 1.5 years while traditional front assembly line sales rebound. We are encouraged CMG guided 3Q comps to low to mid double digits vs 10% CM, for a company that has a track record of guiding somewhere between conservatively and reasonably,” the analyst said in a note.

“Importantly 3Q guidance does not include the potential launch of brisket as a limited time offering (LTO), which we argue makes the most sense to launch in September, when lapping 2 consecutive years of LTO carne asada. We raise our 3Q estimate to 15% from 12.8% and 2021 to 19.2% from 18.9%. In 2022 & beyond, we believe CMG will demonstrate proficiency in growing comps 5% annually given symbiotic sales drivers around a growing advertising budget, digital ordering and loyalty that will help fuel data analytics, combined with compelling menu innovation & an opportunity to grow catering,” he added.

Wells Fargo analyst Jon Tower noted that investors’ fears of a “comp slowdown & margin miss were misplaced” as CMG delivered a strong quarter. Tower raised the price target to $1,800.00 from $1,780.00.

“Pricing of nearly 10% may cause some investor debate, with LSR FAFH ination running closer to 6% Yr/Yr and concerns that the "true" consumer reaction may take more than 2 months to materialize. However, (1) we view continued consumer trade-up to premium LTOs as evidence of pricing power, and (2) the LT story of best-in-class SSS leverage and ROIC-accretive prototypes (commentary continued to suggest Chipotlane returns sit well above non-CL stores) remains unchanged. Valuation pushback is often part of the bear refrain, but we'd argue best-in-class new store returns, cash generation and visibility into ongoing comp leverage should place shares at >2x the market multiple,” Tower wrote in a report



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