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Can Chipotle (CMG) Pull Off a Surprise in Q3 Earnings?
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Chipotle Mexican Grill, Inc. (CMG - Free Report) is scheduled to report third-quarter 2016 results on Oct 25, after market close.
Last quarter, Chipotle posted a negative earnings surprise of 11.22%. However, the trailing four-quarter average earnings surprise is a positive 5.50%.
Let’s see how things are shaping up for this announcement.
Despite various food-safety initiatives, Chipotle continues to suffer from the negative publicity surrounding the E. coli and norovirus outbreaks, which are likely to continue hurting the top- and bottom-line performance in the to-be-reported quarter.
Nonetheless, Chipotle’s efforts to maintain its market position via expansion plans coupled with various sales and technology-driven initiatives should somewhat boost quarterly results.
Particularly, the company’s temporary loyalty program Chiptopia, which ran from July to September, has been well-received by customers. We thus expect the program to drive increased traffic and transactions in the third quarter.
However, costs associated with marketing and promotional initiatives to bring back customers to its stores will continue to thwart the quarter’s profitability. Also, the implementation of food safety practices has increased the amount of labor required to prepare and serve food, resulting in higher labor costs which may further keep profits under pressure.
Earnings Whispers
Our proven model does not conclusively show that Chipotle is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.
Zacks ESP: Chipotle has an Earnings ESP of -8.43%. This is because the Most Accurate estimate stands at $1.52, whereas the Zacks Consensus Estimate is pegged higher at $1.66.
Zacks Rank: Chipotle has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.
Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some restaurant companies to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Fogo de Chao, Inc. has an Earnings ESP of +13.33% and a Zacks Rank #3.
Dave & Buster's Entertainment, Inc. (PLAY - Free Report) has an Earnings ESP of +7.69% and a Zacks Rank #3.
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Can Chipotle (CMG) Pull Off a Surprise in Q3 Earnings?
Chipotle Mexican Grill, Inc. (CMG - Free Report) is scheduled to report third-quarter 2016 results on Oct 25, after market close.
Last quarter, Chipotle posted a negative earnings surprise of 11.22%. However, the trailing four-quarter average earnings surprise is a positive 5.50%.
Let’s see how things are shaping up for this announcement.
CHIPOTLE MEXICN Price and EPS Surprise
CHIPOTLE MEXICN Price and EPS Surprise | CHIPOTLE MEXICN Quote
Factors Likely to Influence this Quarter
Despite various food-safety initiatives, Chipotle continues to suffer from the negative publicity surrounding the E. coli and norovirus outbreaks, which are likely to continue hurting the top- and bottom-line performance in the to-be-reported quarter.
Nonetheless, Chipotle’s efforts to maintain its market position via expansion plans coupled with various sales and technology-driven initiatives should somewhat boost quarterly results.
Particularly, the company’s temporary loyalty program Chiptopia, which ran from July to September, has been well-received by customers. We thus expect the program to drive increased traffic and transactions in the third quarter.
However, costs associated with marketing and promotional initiatives to bring back customers to its stores will continue to thwart the quarter’s profitability. Also, the implementation of food safety practices has increased the amount of labor required to prepare and serve food, resulting in higher labor costs which may further keep profits under pressure.
Earnings Whispers
Our proven model does not conclusively show that Chipotle is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.
Zacks ESP: Chipotle has an Earnings ESP of -8.43%. This is because the Most Accurate estimate stands at $1.52, whereas the Zacks Consensus Estimate is pegged higher at $1.66.
Zacks Rank: Chipotle has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.
Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some restaurant companies to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
The Wendy's Company (WEN - Free Report) has an Earnings ESP of +10.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Fogo de Chao, Inc. has an Earnings ESP of +13.33% and a Zacks Rank #3.
Dave & Buster's Entertainment, Inc. (PLAY - Free Report) has an Earnings ESP of +7.69% and a Zacks Rank #3.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>