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Chipotle (CMG) Stock Rises 51% in a Year: More Upside Left?
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Shares of Chipotle Mexican Grill, Inc. (CMG - Free Report) have risen 51.1% over the past year against a 4.1% decline in the overall industry. The company’s success is largely driven by strong digital initiatives, effective product branding and innovative menu offerings.
The Zacks Rank #3 (Hold) company boasts an impressive long-term earnings growth rate of 22.7%. Projections for 2024 indicate that its earnings and revenues are expected to increase 23.2% and 15%, respectively, from the year-ago levels. Nevertheless, rising costs for commodities and wages remain concerning.
Catalysts Driving Growth
Chipotle is intensifying its efforts to expand its digital program to drive growth, ensuring that digital ordering becomes more appealing for customers and more efficient for its restaurants. This digitization has improved its delivery system, bolstered by partnerships with Uber Eats and Grubhub, which are drawing in new customers.
Additionally, CMG has extended its digital capabilities into Canada and increased orders through collaborations with major third-party delivery services. To enhance the convenience of its digital ordering platform, management has introduced features such as unlimited customization, contactless delivery and group ordering.
In December 2023, Chipotle announced investments in Greenfield Robotics and Nitricity. Greenfield Robotics specializes in regenerative agriculture, using fleets of autonomous robots to weed fields without chemicals. Nitricity focuses on reducing greenhouse gas emissions by creating natural fertilizer products to ensure sustainability.
CMG is also testing smarter pickup times logic, based on different sales and deployment levels, to drive growth. Moreover, the company is exploring the use of robotics-based autonomous vehicles for delivery, which is expected to improve the customer experience in the near future.
Chipotle's emphasis on advertising initiatives is proving successful. The marketing team has effectively increased the brand's visibility, relevance and popularity. The recent comeback of the beloved Chicken Al Pastor as a limited-time offer exceeded expectations. It also introduced the Carne Asada Quesadilla, showcasing the collaborative effort to reintroduce this popular menu item. This was especially noteworthy, considering that approximately 5% of U.S. beef meets its food integrity standards.
During the first quarter of 2024, management initiated promotions highlighting barbacoa, capitalizing on consumer insights which indicated a lack of awareness regarding it. Thus, CMG rebranded it as Braised Beef Barbacoa, highlighting it is slow-cooked, responsibly prepared beef seasoned with garlic and cumin, and hand-shredded. The campaign yielded positive results, driving increased transactions and spending. This apart, the company sustained the Behind the Foil brand campaign.
Focus on operations strengthens CMG’s core value proposition, offering customized, delicious culinary delights quickly with great hospitality. Operational enhancements and accessible menu pricing have fortified this proposition, leading to positive transaction comps throughout the year, with a 5% increase in 2023.
Image Source: Zacks Investment Research
Concerns
Chipotle, like other industry players, has been facing significant supply-chain challenges and inflation across most commodities and categories. During the first quarter of 2024, food, beverage and packaging costs were $779 million compared with $692.6 million reported in the prior-year quarter. The upside was primarily caused by beef and produce inflation, and a challenge in the protein mix resulting from the Braised Beef Barbacoa marketing initiative. Labor costs increased 13% year over year to $659.5 million. This was mainly due to wage inflation and higher performance-based compensation.
The Zacks Consensus Estimate for WING’s 2024 sales and earnings per share (EPS) suggests a rise of 27.5% and 36.7%, respectively, from the year-ago levels.
El Pollo Loco Holdings, Inc. (LOCO - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 19.4%, on average. Shares of LOCO have risen 54.6% in the past year.
The Zacks Consensus Estimate for LOCO’s 2024 sales implies growth of 1.5% from the year-earlier actuals.
Brinker International, Inc. (EAT - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 213.4%, on average. EAT’s shares have risen 64% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5% and 39.2% growth, respectively, from the prior- year levels.
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Chipotle (CMG) Stock Rises 51% in a Year: More Upside Left?
Shares of Chipotle Mexican Grill, Inc. (CMG - Free Report) have risen 51.1% over the past year against a 4.1% decline in the overall industry. The company’s success is largely driven by strong digital initiatives, effective product branding and innovative menu offerings.
The Zacks Rank #3 (Hold) company boasts an impressive long-term earnings growth rate of 22.7%. Projections for 2024 indicate that its earnings and revenues are expected to increase 23.2% and 15%, respectively, from the year-ago levels. Nevertheless, rising costs for commodities and wages remain concerning.
Catalysts Driving Growth
Chipotle is intensifying its efforts to expand its digital program to drive growth, ensuring that digital ordering becomes more appealing for customers and more efficient for its restaurants. This digitization has improved its delivery system, bolstered by partnerships with Uber Eats and Grubhub, which are drawing in new customers.
Additionally, CMG has extended its digital capabilities into Canada and increased orders through collaborations with major third-party delivery services. To enhance the convenience of its digital ordering platform, management has introduced features such as unlimited customization, contactless delivery and group ordering.
In December 2023, Chipotle announced investments in Greenfield Robotics and Nitricity. Greenfield Robotics specializes in regenerative agriculture, using fleets of autonomous robots to weed fields without chemicals. Nitricity focuses on reducing greenhouse gas emissions by creating natural fertilizer products to ensure sustainability.
CMG is also testing smarter pickup times logic, based on different sales and deployment levels, to drive growth. Moreover, the company is exploring the use of robotics-based autonomous vehicles for delivery, which is expected to improve the customer experience in the near future.
Chipotle's emphasis on advertising initiatives is proving successful. The marketing team has effectively increased the brand's visibility, relevance and popularity. The recent comeback of the beloved Chicken Al Pastor as a limited-time offer exceeded expectations.
It also introduced the Carne Asada Quesadilla, showcasing the collaborative effort to reintroduce this popular menu item. This was especially noteworthy, considering that approximately 5% of U.S. beef meets its food integrity standards.
During the first quarter of 2024, management initiated promotions highlighting barbacoa, capitalizing on consumer insights which indicated a lack of awareness regarding it. Thus, CMG rebranded it as Braised Beef Barbacoa, highlighting it is slow-cooked, responsibly prepared beef seasoned with garlic and cumin, and hand-shredded. The campaign yielded positive results, driving increased transactions and spending. This apart, the company sustained the Behind the Foil brand campaign.
Focus on operations strengthens CMG’s core value proposition, offering customized, delicious culinary delights quickly with great hospitality. Operational enhancements and accessible menu pricing have fortified this proposition, leading to positive transaction comps throughout the year, with a 5% increase in 2023.
Image Source: Zacks Investment Research
Concerns
Chipotle, like other industry players, has been facing significant supply-chain challenges and inflation across most commodities and categories. During the first quarter of 2024, food, beverage and packaging costs were $779 million compared with $692.6 million reported in the prior-year quarter. The upside was primarily caused by beef and produce inflation, and a challenge in the protein mix resulting from the Braised Beef Barbacoa marketing initiative. Labor costs increased 13% year over year to $659.5 million. This was mainly due to wage inflation and higher performance-based compensation.
Key Picks
Wingstop Inc. (WING - Free Report) sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter negative earnings surprise of 21.4%, on average. The stock has risen 93.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for WING’s 2024 sales and earnings per share (EPS) suggests a rise of 27.5% and 36.7%, respectively, from the year-ago levels.
El Pollo Loco Holdings, Inc. (LOCO - Free Report) carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 19.4%, on average. Shares of LOCO have risen 54.6% in the past year.
The Zacks Consensus Estimate for LOCO’s 2024 sales implies growth of 1.5% from the year-earlier actuals.
Brinker International, Inc. (EAT - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 213.4%, on average. EAT’s shares have risen 64% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5% and 39.2% growth, respectively, from the prior- year levels.