Chipotle (CMG) Wins Over a Bull Following ‘Home Run’ Q1 Results

Canaccord's Lynne Collier sees meaningful upside waiting in the next one to two years for CMG's comeback.

Chipotle Mexican Grill, Inc. (NYSE:CMG) shares are firing up 21% today after the Mexican food chain’s first quarter earnings have left Wall Street impressed- including Canaccord analyst Lynne Collier, who in reaction has joined the bullish camp.

Pointing to new confidence in the company’s turnaround and stronger earnings visibility, the analyst upgrades from a Hold to a Buy rating on CMG stock. Additionally, Collier bumps up the price target from $300 to $425, which implies a 3% upside from current levels. (To watch Collier’s track record, click here)

“We believe the fundamentals have bottomed and we see a path to improved SSS and margins under new leadership. Over the next couple of months, we expect management to provide greater detail on numerous top-line initiatives, including restaurant re-images, daypart expansion, menu innovation, consumer access (digital, drive-throughs, etc.) and marketing upgrades. While shares are poised to move higher today (+10% AH), we still see material upside over the next 12-24 months as we believe that we are in the early innings of a turnaround,” cheers Collier.

For the first quarter, CMG delivered stronger than anticipated comps with margins far outclassing expectations. The company posted $2.13 in EPS, beating out Collier’s estimate of $1.64 and the Street’s $1.59. Whereas the Street was calling for comps of +1.3%, CMG handed over a +2.2% surge in comps as well as a restaurant-level margin of 19.5%. Momentum here follows dialed down commodity and other operating expenses, which is offset a bit by an increase in labor. When glancing ahead to the rest of 2018, the analyst believes CMG management commentary points to better margins, with estimates that are both “conservative” as well as “potentially beatable.”

On back of the print, the analyst is scaling back her EPS expectations on account of rising depreciation and taxes, tweaking the estimate from $8.94 to $8.44. That said, the analyst is boosting her 2018 EBITDA forecast from $526 to $540 million. For 2019, the analyst sets a new EPS projection of $11.10, which marks 31.6% in growth and assumes a +3.5% comp and 18.8% restaurant-level margin.

TipRanks indicates CMG’s turnaround is still a work in progress, with most of Wall Street hedging their bets on this consumer player. Out of 27 analysts polled in the last 3 months, 7 are bullish on CMG stock, 17 remain sidelined, while 3 are bearish on the stock. With a loss potential of 14%, the stock’s consensus target price stands low at $349.52, with negativity baked into expectations.

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