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Chipotle (CMG) Shares Gain 54% in 1 Year: More Room to Run?

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Chipotle Mexican Grill, Inc. (CMG - Free Report) continues to undertake extensive sales-building efforts to enhance customer experience and strengthen top-line growth. It also increasingly focuses on offering good quality food to customers. With a decent share price appreciation and a Zacks Rank #2 (Buy), the company is currently a profitable investment choice.

Shares of Chipotle have gained 54.4% over the past year, outperforming the industry’s 20.2% rally.

Moreover, an upward revision in earnings estimates for 2019 reflects analysts’ confidence in the company’s earnings potential. Over the past 60 days, the Zacks Consensus Estimate for its earnings in 2019 has been revised upward by 6.1%. Further, the company delivered positive earnings surprise in each of the trailing four quarters, the average beat being 12%.


 

Sales-Building Initiatives Support Top-Line Growth

Chipotle's increased focus on food safety and enhancing customer experience along with various sales-building initiatives bode well. The company is working on strengthening sales growth by shifting its strategy from giveaways, discounts and rewards to new menu items, operational excellence, enhancement of guest experience by retraining workers, technology-driven convenience and more aggressive brand marketing.

For 2019, the company’s priorities will revolve around the five key initiatives namely, digital system investments such as pickup shelves, digitized make lines, loyalty and delivery; marketing programs focusing on cooking techniques; and menu innovation and operational excellence.

Driven by these major efforts, we expect Chipotle’s top line to grow in 2019. Consequently, the Zacks Consensus Estimate for its revenues in 2019 is pegged at $5.4 billion, suggesting 11.2% growth from the reported figure in 2018.

Increasing Focus on Digital Capability Enhancement

Chipotle is prioritizing its e-Commerce program to gain customer confidence as part of its digital innovation. In the regard, it redesigned and simplified its online ordering site, enabled online payment for catering, online meal customizations, and collaborated with several well-known third-party providers for delivery.

The first quarter of 2019 saw particularly strong traction in delivery sales. In the first quarter, digital sales grew 101% year over year. Digital sales totaled $206 million during the first quarter and represented 15.7% of sales. Also, since the rollout of its “Smarter Pickup Times” technology, there has been a significant increase in digital orders and higher guest satisfaction. In 2018, the company enabled digitized make lines in more than 1,000 restaurants. It expects to roll it out in all restaurants by the end of 2019.

Earnings and Returns Look Promising

Arguably, earnings growth is of utmost importance for determining a stock’s potential as surging profit levels often indicate solid prospects (and stock price gains).

Chipotle’s robust sales trend also aided earnings. In the first quarter of 2019, adjusted earnings of $3.40 per share surpassed the Zacks Consensus Estimate of $3.01 by 13%. Further, the bottom line grew 59.6% from the year-ago quarter, backed by increased revenues and lower food costs.

We expect the upside trend to continue throughout 2019. The Zacks Consensus Estimate for the company’s earnings in 2019 is pegged at $13, indicating a 43.5% increase from the past year’s reported figure.

Further, Chipotle’s Return on Equity (ROE) for the trailing 12 months is 19.8%, higher than the industry’s 6.5% growth. This suggests that the company reinvests more efficiently than peers.

Other Key Picks

Some other top-ranked restaurant stocks are Noodles & Company (NDLS - Free Report) , Yum China (YUMC - Free Report) and Denny’s (DENN - Free Report) . While Noodles & Company currently sports a Zacks Rank #1 (Strong Buy), Yum China and Denny’s carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Noodles & Company, and Yum China’s earnings for 2019 are expected to grow 700% and 9.8%, respectively. Denny’s earnings for 2020 are expected to increase 8.2%.

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