Bank Of America Says Chipotle's Growth Outlook Is Baked Into The Stock

Casual fast food restaurant chain Chipotle Mexican Grill, Inc. CMG reported Thursday its third-quarter results, which signaled signs of growth Bank of America says is already priced into the stock at current levels.

The Analyst

Bank of America's Gregory Francfort maintains an Underweight rating on Chipotle Mexican Grill with an unchanged $340 price target.

The Thesis

Chipotle's third-quarter report is highlighted by an EPS beat of $2.16 versus Bank of America's estimate of $2.09 per share. However, the earnings would have been roughly consistent with the Street's estimate of $2.01 when factoring in a 20-cent per share marketing expense deferral. Margins came in better than expected due to 60 basis points of lower labor and 70 basis points of operating costs.

The company guided to opening 140 to 155 new units, which Francfort said marks an increase from an estimated 130 new stores in 2018. The company will also install pick-up shelves in all units by the middle of next year and testing drive-up windows to pick up online orders. This should generate an acceleration in traffic in 2019 and management deserves credit for implementing a "solid plan."

A mid-single digit comp growth profile for 2019 is already priced into Chipotle's stock. The analyst's $340 price target is based on 31 times estimated 2019 EPS, which is towards the lower end of the stock's historical forward P/E multiple range of 25 times to 40 times.

Price Action

Shares of Chipotle were trading lower by nearly 1 percent to $420 early Friday morning.

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Photo credit: Chis Potter, Flickr