Chipotle Surges After Results, Analysts Bullish as Price Hikes Continue to Protect Margins

Shares of Chipotle Mexican Grill (NYSE: CMG) are up almost 10% in premarket trading Wednesday after the company reported better-than-expected Q2 adjusted EPS.

The fast-food chain reported Q2 adjusted EPS of $9.30, compared to $7.46 in the year-ago period and above the consensus estimates of $9.09. Revenue came in at $2.21 billion, up 17% YoY and below the consensus projection of $2.25 billion.

Same-store sales rose 10.1% in the quarter, compared to 31.2% growth in the year-ago quarter, while analysts were estimating an 11.1% increase. Chipotle reported an operating margin of 15.3%, compared to 13% in the same period last year and analyst estimates of 15.7%.

The number of new locations totaled 42 at the end of the quarter, down 25% YoY and missing the consensus estimates of 53. Chipotle expects to open between 235 and 250 new restaurants on a full-year basis, compared to analyst expectations of 248.

The company expects comparable full-year sales growth in mid to high-single-digits.

KeyBanc analyst Eric Gonzales cut the price target to $1,750 from $1,900 but remains positive on the CMG story.

“Our estimates remain comfortably ahead of consensus based on our belief in the brand’s value proposition and the sense that the Company will continue to deploy pricing when necessary to protect profitability and achieve its long-term margin goals,” Gonzales told clients in a note.

Morgan Stanley analyst John Glass hiked the price target to $1,808 from $1,768 to reflect better margins.

“Better than feared 3Q to date, further incremental pricing actions and corresponding margin benefits cause our numbers to go ~6% higher, even if risks also increase if pricing finds resistance,” Glass wrote in a note.

By Senad Karaahmetovic

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