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Can Chipotle Mexican Grill Bounce Back in 3Q17?

PART:
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Part 4
Can Chipotle Mexican Grill Bounce Back in 3Q17? PART 4 OF 6

Can Chipotle Outperform Analysts’ Earnings Estimate in 3Q17?

3Q17 estimates

In 3Q17, analysts are expecting Chipotle Mexican Grill (CMG) to post adjusted EPS (earnings per share) of $1.74, which represents a 120.3% rise from $0.79 in 3Q16.

Can Chipotle Outperform Analysts’ Earnings Estimate in 3Q17?

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EPS growth is expected to be driven by revenue growth, expansion of its EBIT margin, and share repurchases. However, a higher effective tax rate is expected to offset some of the increase in EPS. Analysts are expecting Chipotle’s effective tax rate to be 38.8% compared to 25.0% in 3Q16.

Since the beginning of 4Q16 to the end of 2Q17, the company has repurchased shares worth $171.3 million. It had $197.9 million available under its share repurchase program. Share repurchases can reduce the number of shares outstanding, thus driving the company’s EPS.

From the above graph, we can see that the company has outperformed analysts’ estimates twice in the last four quarters. When that happens, the stock tends to rise.

Peer comparisons and outlook

For 3Q17, analysts are expecting EPS for Shake Shack (SHAK) to be unchanged at $0.15 and EPS for The Cheesecake Factory (CAKE) to fall 13.4% to $0.61.

For the next four quarters, analysts are expecting Chipotle to post EPS of $8.84, which represents a rise of 68.1% from $5.26 in the corresponding four quarters of the previous year. EPS growth is expected to be driven by revenue growth, expansion of EBIT margins, and share repurchases.

Next, let’s look at Chipotle’s valuation multiple.

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