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Why Recent Events May Have Impacted Chipotle

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The impact on valuations

Previously, we saw how some of Chipotle Mexican Grill’s (CMG) recent events moved its share price. Analyst expectations affected their estimates and thus the valuation, which impacted share price. Chipotle’s share price has also trended valuation multiples such as forward PE (price-to-earnings).

Analysts revised their second quarter forward EPS (earnings per share) guidance downward, from $4.47 to $4.46. That translates to an EPS rise of 27%, from 28% in the second quarter. For full year 2015, analysts now estimate an EPS of $17.37, down from $17.40. This could be due to lower sales growth expectations in the next 12 months.

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A lower estimate also lowers valuation multiples. Over the past month, Chipotle’s valuation multiple forward PE fell about 4% to 33.7x, and share price fell 4% to $609. The valuation multiple has been falling since the start of the year, from a high of 21.5x to the most current 17.4x. But how does Chipotle compare to its peers? Does the valuation multiple look attractive?

The above graph compares Chipotle to its peers. Chipotle doesn’t appear to be expensive based on a next-12-month PE of 33.7x, but this doesn’t mean Chipotle is cheap, either.

Bear in mind that the peers in the graph aren’t perfectly comparable peers. Jack in the Box (JACK) is trading at 27x. It operates Jack in the Box and Qdoba. Starbucks (SBUX) operates company-operated units, but unlike Chipotle, it has an equal number of franchise outlets.

The Consumer Discretionary Select Sector SPDR Fund (XLY) holds about 1% of Chipotle and 0.3% of Darden Restaurants (DRI).

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