Key points
- Chipotle Mexican Grill reported a steamy fourth quarter and provided favorable guidance for 2024.
- Return on equity is solid, reducing the number of shares as the company and share capital grow.
- Analysts support this market and are pushing it higher; the first revisions are on the way and putting upward pressure on the price action.
- 5 titles we prefer at Chipotle Mexican Grill
Mexican grill with chipotle New York Stock Exchange: CMG it is the best among restaurants for many reasons. CEO Brian Niccol revived this failed history with a trend toward modernization and quality that continues to drive growth today. Fourth quarter results and guidance indicate that growth is accelerating sequentially and on a year-over-year basis, pointing to another solid year in 2024. Trends suggest an upward shift in analysts’ expected price range for the price of CMG shares; as fourth quarter results and guidance are favorable, upward revisions are expected to continue and a move to $3,000 is likely.
Chipotle Capitalizes on Growth with Digital Access
Chipotle Mexican Grill had a smoking hot quarter with revenue of $2.52 billion, up 15.4% from a year earlier. The gain is driven by increased competitive traffic that left the take 120 basis points above the Marketbeat.com consensus. Comps stood at 8.4% with a 7.4% increase in ticket counts and a 1.0 increase in average checks, helped by 121 new stores. The new stores include 110 new Chipotlances, which is a key detail. Chipotlanes opens access to digital markets, accounting for 36% of sales and growing. Chipotlanes also improves revenue compared to non-Chipotlance locations, resulting in larger margins.
Margin news is tasty. Chipotle Mexican Grill expanded restaurant-level operating margin by 140 basis points and operating margin by 80 basis points as higher food costs were offset by savings in other categories, including paper products. Net and adjusted net income growth accelerated on margin strength, leaving adjusted EPS of $10.36 up 25% year-over-year.
The ride is solid. The company expects a mid-single-digit increase in store sales, compounded by a 7.8% increase in the number of stores in 2023 and another 8.7% expected in 2024. Analysts expect revenue growth by 13.5% and wider margins. The company’s long-term goals are also solid and include expanding the number of stores by 100%. In light of this, the 46X 2024 earnings it trades at are a steal. The company is also on track for international expansion and has announced its first partner. This is the Alshaya group; the first international locations are expected this year in Dubai and Kuwait.
Chipotle offers value to investors
Chipotle Mexican Grill generates ample cash flow, with $282 million reported in the fourth quarter. That’s an income margin of 11.2%, and cash flow isn’t hampered by long-term debt. The cash flow is used to expand the company’s footprint, invest in people and technology, and improve balance and shareholder value.
The company repurchased $144.3 million in shares in the fourth quarter, for a fiscal year total of nearly $590 million. This is enough to offset the share-based compensation, and the basic and diluted share count is lower than last year. The diluted count fell 1%, compounding the increase in cash, current and total assets, aiding the 16% increase in net worth. Because the Board increased the repurchase authorization by $200 million, doubling the remainder of the previous authorization, repurchases are expected to continue into 2024.
The Technical Outlook: Chipotle Sets New High
Chipotle Mexican Grill price action rose 3% following the announcement of setting a new all-time high in after-hours trading. The move extends the gap above the analyst consensus target, but analysts are already raising their estimates. The first to appear is Morgan Stanley, which reiterated its Equal Weight rating while raising its target to $2,500 above consensus. There have been ten price target revisions since January 1, all upward and all but one above consensus. This trend is expected to continue now that the guidelines have been set.
The next target for significant resistance is near $2,800. This is the current high price target set by analysts. Since the market is currently in rally mode, CMG stock could reach that goal before mid-year. Assuming results continue to impress, that target should easily fall as new, more ambitious goals are set.
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