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Chipotle (CMG) to Post Q3 Earnings: Is a Beat in the Cards?

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Chipotle Mexican Grill, Inc. (CMG - Free Report) is scheduled to report third-quarter 2019 results on Oct 22, after the market closes. The company’s increased focus on enhancing customer experience by introducing food-safety programs, various sales-building initiatives and greater digital innovation is expected to have resulted in revenue growth in the third quarter. Further, lower cost of sales is likely to have aided margins in the to-be-reported quarter.

In the last reported quarter, Chipotle’s earnings surpassed the Zacks Consensus Estimate by 8.1%. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average being 13.2%. Backed by an impressive earnings surprise trend, shares of the company have gained 93.4% over the past year, outperforming the industry’s 26.3% rally.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

The Zacks Consensus Estimate for the quarter to be reported has increased from $3.15 to $3.16 in the past 30 days. This indicates a solid increase of 46.3% from the year-ago earnings of $2.16 per share. Revenues are expected to be $1.38 billion, suggesting a 12.4% year-over-year increase.

Let us see how Chipotle’s top and bottom lines have shaped up in the third quarter.

Top-Line Momentum Likely to Continue

New menu innovation, continued use of technology and higher store opening are expected to have contributed to Chipotle’s comps growth in the third quarter. The company has been 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. These sales-building efforts are likely to have aided the company’s top line in the quarter to be reported.

Comps in the quarter are expected to rise 9.4%, indicating an improvement from the year-ago quarter’s 4.4% growth.

Meanwhile, moderate Avocado prices and improved pricing are expected to have aided Chipotle’s margins. However, wage inflation and higher marketing and delivery expenses are likely to have weighed on its margins and the bottom line.

Quantitative Model Prediction

Our proven model predicts that Chipotle has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat in the third quarter. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Chipotle has an Earnings ESP of +0.24%. Notably, Earnings ESP represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Zacks Rank: Chipotle currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Stocks to Consider

Here are a few other stocks from the Restaurant space that investors may consider, as our model shows that these too have the right combination of elements to post an earnings beat in the third quarter.

Dunkin' Brands Group, Inc. DNKN presently carries a Zacks Rank #2 and has an Earnings ESP of +2.15%.

Papa John's International, Inc. PZZA currently has an Earnings ESP of +7.69% and a Zacks Rank #3.

Shake Shack, Inc. SHAK carries a Zacks Rank #1 at present and has an Earnings ESP of +6.78%.

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