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CMG Versus EAT: Which Restaurant Stock is Better Placed Now?
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The restaurant industry is experiencing ongoing advantages due to a significant uptick in menu prices, increased average check values and expansion initiatives. Furthermore, industry players are reaping rewards from their collaborations with delivery channels and digital platforms. Consistent growth in sales is indicative of a positive outlook for the industry.
However, challenges persist in form of high labor costs and rising food expenses. Additionally, the industry is grappling with reduced customer traffic due to escalating prices.
In line with the industry's growth, leading restaurant companies — Chipotle Mexican Grill, Inc. (CMG - Free Report) and Brinker International, Inc. (EAT - Free Report) — are trying out different strategies to generate profits. Each stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Let's analyze which stock is poised better with respect to different parameters.
Price Performance and Valuation
While shares of Chipotle have increased 12.2% in the past year, Brinker have gained 8.9%.
On the basis of forward 12-month P/E ratio, which is a commonly used multiple for valuing restaurant stocks, the industry is currently trading at 22.9X compared with S&P 500’s 19.3X. Brinker has an edge with a lower forward 12-month P/E ratio of 9.1X compared with Chipotle’s figure of 39.23X.
Image Source: Zacks Investment Research
Estimated Earnings & Revenues
Arguably, earnings growth is of utmost importance for determining a stock’s potential as surging profit levels indicate strong prospects (and stock price gains).
For the current year, Chipotle’s earnings per share are expected to jump 31.4% year over year. Notably, sales for the current year are estimated to improve 13.5% year over year.
Meanwhile, Brinker’s current-year earnings per share are likely to rise 18.4% year over year. The company’s sales are suggested to gain 4.6% year over year. Thus, this round goes to Chipotle.
Fundamental
Chipotle is working on strengthening its brand and recovering sales by shifting its strategy from giveaways, discounts and rewards to new menu items, operational excellence, enhancement of guest experience, technology-driven convenience and more aggressive brand marketing. Additionally, Chipotle has been working on a new pipeline for its menu offerings.
Impressive comps performance continues to drive growth. During second quarter, comparable restaurant sales climbed 7.4% year over year, following growth of 10.9% (in first-quarter 2023), 5.6% (in fourth-quarter 2022), 7.6% (in third-quarter 2022), 10.1% (in second-quarter 2022) and 9% (in first-quarter 2022). This is primarily attributable to a rise in menu prices and higher transactions.
Consistent strength in digital sales, solid recovery of in-restaurant sales and positive customer reception of new menu items also contributed to CMG’s results. For the third quarter of 2023, it anticipates comps growth in the low-to-mid single-digit range, driven by transaction growth and pricing strategies. For full-year 2023, it expects comps growth in the mid-to-high single-digit range.
Brinker is one of the few fast-casual restaurant chains that have been expanding despite sluggish economic development. Management is gearing up for international expansion as well, especially in the faster-growing emerging markets.
EAT is on the lookout to expand the brand in existing markets and enter new ones. During fourth-quarter fiscal 2023, it opened seven new Chili's restaurants, bringing EAT's fiscal-year openings to 14. These recent openings continue to strengthen Chili's brand, as three of them consecutively reported record new opening sales in this quarter.
Brinker remains steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives such as streamlining of menu and its innovation, strengthening its value proposition, better food presentation, advertising campaigns, kitchen system optimization and an introduction of better service platform.
Our Take
The fundamentals of both companies are solid. However, earnings growth of Chipotle has an edge over Brinker.
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CMG Versus EAT: Which Restaurant Stock is Better Placed Now?
The restaurant industry is experiencing ongoing advantages due to a significant uptick in menu prices, increased average check values and expansion initiatives. Furthermore, industry players are reaping rewards from their collaborations with delivery channels and digital platforms. Consistent growth in sales is indicative of a positive outlook for the industry.
However, challenges persist in form of high labor costs and rising food expenses. Additionally, the industry is grappling with reduced customer traffic due to escalating prices.
In line with the industry's growth, leading restaurant companies — Chipotle Mexican Grill, Inc. (CMG - Free Report) and Brinker International, Inc. (EAT - Free Report) — are trying out different strategies to generate profits. Each stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Let's analyze which stock is poised better with respect to different parameters.
Price Performance and Valuation
While shares of Chipotle have increased 12.2% in the past year, Brinker have gained 8.9%.
On the basis of forward 12-month P/E ratio, which is a commonly used multiple for valuing restaurant stocks, the industry is currently trading at 22.9X compared with S&P 500’s 19.3X. Brinker has an edge with a lower forward 12-month P/E ratio of 9.1X compared with Chipotle’s figure of 39.23X.
Image Source: Zacks Investment Research
Estimated Earnings & Revenues
Arguably, earnings growth is of utmost importance for determining a stock’s potential as surging profit levels indicate strong prospects (and stock price gains).
For the current year, Chipotle’s earnings per share are expected to jump 31.4% year over year. Notably, sales for the current year are estimated to improve 13.5% year over year.
Meanwhile, Brinker’s current-year earnings per share are likely to rise 18.4% year over year. The company’s sales are suggested to gain 4.6% year over year. Thus, this round goes to Chipotle.
Fundamental
Chipotle is working on strengthening its brand and recovering sales by shifting its strategy from giveaways, discounts and rewards to new menu items, operational excellence, enhancement of guest experience, technology-driven convenience and more aggressive brand marketing. Additionally, Chipotle has been working on a new pipeline for its menu offerings.
Impressive comps performance continues to drive growth. During second quarter, comparable restaurant sales climbed 7.4% year over year, following growth of 10.9% (in first-quarter 2023), 5.6% (in fourth-quarter 2022), 7.6% (in third-quarter 2022), 10.1% (in second-quarter 2022) and 9% (in first-quarter 2022). This is primarily attributable to a rise in menu prices and higher transactions.
Consistent strength in digital sales, solid recovery of in-restaurant sales and positive customer reception of new menu items also contributed to CMG’s results. For the third quarter of 2023, it anticipates comps growth in the low-to-mid single-digit range, driven by transaction growth and pricing strategies. For full-year 2023, it expects comps growth in the mid-to-high single-digit range.
Brinker is one of the few fast-casual restaurant chains that have been expanding despite sluggish economic development. Management is gearing up for international expansion as well, especially in the faster-growing emerging markets.
EAT is on the lookout to expand the brand in existing markets and enter new ones. During fourth-quarter fiscal 2023, it opened seven new Chili's restaurants, bringing EAT's fiscal-year openings to 14. These recent openings continue to strengthen Chili's brand, as three of them consecutively reported record new opening sales in this quarter.
Brinker remains steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives such as streamlining of menu and its innovation, strengthening its value proposition, better food presentation, advertising campaigns, kitchen system optimization and an introduction of better service platform.
Our Take
The fundamentals of both companies are solid. However, earnings growth of Chipotle has an edge over Brinker.