Chipotle Mexican Grill, Inc. (CMG) reported its fourth-quarter results on February 6. The company comfortably surpassed Wall Street’s EPS and revenue estimates. In this piece, I have discussed why it could be prudent to wait for a better entry point in the stock now despite the better-than-expected results.
For the fourth quarter, CMG’s EPS was 6.5% above the consensus estimate, and its revenue was 1.1% higher than the analyst estimates. The company continued its stellar earnings history, beating the consensus EPS estimate in each of the trailing four quarters.
The company opened 121 restaurants during the quarter, compared to 100 openings in the prior-year quarter. Its restaurants at the end of December 31, 2023, stood at 3,437, compared to 3,187 at the end of December 31, 2022. In addition, its fourth-quarter comparable restaurant sales increase was 8.4%, compared to 5.6% in the prior year quarter. Digital sales during the quarter stood at 36%.
For fiscal 2023, its comparable restaurant sales grew 7.9%, and digital sales represented 37% of sales. It opened 271 new restaurants, including 238 Chipotlanes. CMG’s Chairman and CEO Brian Niccol said, “2023 was an outstanding year where we delivered strong transaction growth driven by throughput and menu innovation, opened a record number of new restaurants, surpassed $3 million in AUVs, and formed our first international partnership.”
“I am more confident than ever that we have the right people and the right strategy to achieve our long-term growth goals of reaching 7,000 restaurants in North America, $4 million in AUVs, expanding our industry-leading margins and returns and furthering our purpose of Cultivating a Better World globally,” he added.
For fiscal 2024, CMG’s management anticipates comparable restaurant sales growth in the mid-single digit range. Also, the company expects to open 285 to 315 new restaurants this year.
Over the past year, the stock has gained 60% and 40.8% over the past six months to close the last trading session at $2,620.48.
Here’s what could influence CMG’s performance in the upcoming months:
Robust Financials
CMG’s total revenue for the fiscal fourth quarter ended December 31, 2023, increased 15.4% year-over-year to $2.52 billion. Its adjusted net income rose 23.7% over the prior-year quarter to $286.18 million. The company’s adjusted income from operations increased 21.5% year-over-year to $274.86 million. Also, its adjusted EPS came in at $10.36, representing an increase of 25% year-over-year.
For the fiscal year ended December 31, 2023, CMG’s total revenue rose 14.3% year-over-year to $9.87 billion. Its net cash provided by operating activities increased 34.8% over the prior-year period to $1.78 billion. The company’s adjusted net income increased 35.1% year-over-year to $1.24 billion. In addition, its adjusted EPS came in at $44.86, representing an increase of 36.9% year-over-year.
Favorable Analyst Estimates
Analysts expect CMG’s EPS and revenue for fiscal 2024 to increase 18.6% and 13.7% year-over-year to $53.18 and $11.22 billion, respectively. Its fiscal 2025 EPS and revenue are expected to increase 21.7% and 13.1% year-over-year to $64.72 and $12.69 billion, respectively.
Stretched Valuation
In terms of forward non-GAAP P/E, CMG’s 49.27x is 207.7% higher than the 16.01x industry average. Its 2.43x forward non-GAAP PEG is 46.8% higher than the 1.66x industry average. Likewise, its 39.68x forward EV/EBIT is 180.4% higher than the 14.15x industry average.
High Profitability
In terms of the trailing-12-month EBITDA margin, CMG’s 19.51% is 79% higher than the 10.90% industry average. Likewise, its 9.47x trailing-12-month levered FCF margin is 73% higher than the industry average of 5.47x. Also, its 16.27x trailing-12-month EBIT margin is 115.2% higher than the industry average of 7.56x.
POWR Ratings Reflect Uncertainty
CMG has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CMG has an F grade for Value, consistent with its stretched valuation. It has a B grade for Quality, in sync with its high profitability.
CMG is ranked #17 out of 42 stocks in the Restaurants industry. Click here to access CMG’s Growth, Momentum, Stability, and Sentiment ratings.
Bottom Line
After ending 2023 on a solid note, CMG said that unusually cold weather hurt sales in January. The company has grand plans to double its store count, reaching 7,000 locations at some point in the future. However, with consumer prices for food away from home category showing a rise in December, consumers are likely to have pulled back spending on eating out.
Despite the company’s promising long-term growth plans, it trades at an expensive valuation. Therefore, it could be wise to wait for a better entry point in the stock.
How Does Chipotle Mexican Grill, Inc. (CMG) Stack Up Against Its Peers?
CMG has an overall POWR Rating of C, equating to a Neutral rating. You may check out these B-rated stocks within the Restaurants industry: Rave Restaurant Group, Inc. (RAVE), Nathan's Famous, Inc. (NATH), and Domino's Pizza Group plc (DPUKY). For exploring more Buy-rated Restaurants stocks, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
CMG shares were trading at $2,633.02 per share on Friday morning, up $12.54 (+0.48%). Year-to-date, CMG has gained 15.13%, versus a 5.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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