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Why Chipotle Failed to Hold On to Its Gains after 2Q16 Results

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Aug. 17 2016, Published 9:02 a.m. ET

Stock performance

Although Chipotle Mexican Grill’s (CMG) 2Q16 revenue and EPS (earnings per share) were lower than expected, its stock rose 5.7% after the announcement of 2Q16 results on July 21, 2016. The announcement of improved traffic and SSSG (same-store sales growth) in the first two weeks of July 2016 increased investors’ confidence, which led to a rise in Chipotle’s share price.

In July 2016, Chipotle launched Chiptopia, a customer rewards program, and introduced chorizo to its menu. These initiatives appear to have contributed toward improving Chipotle’s traffic and SSSG to -15%, and -20%, respectively, in the first two weeks of July 2016. These factors made investors optimistic about Chipotle.

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However, the optimism didn’t last long. By the end of August 16, 2016, Chipotle was trading at $400.90, which was a 9.4% drop from $442.50, the closing price on July 22, 2016. Analysts lowered their SSSG and EPS estimates, believing the recovery would take more time than expected. This made investors skeptical about Chipotle’s future earnings, which led to a drop in its share price. From July 22 to August 16, 2016, Chipotle’s peers Panera Bread (PNRA) and Shake Shack (SHAK) returned 1.5% and -9.6%, respectively.

Year-to-date performance

In 2015, Chipotle’s stock returned -29.9%, while the company has returned -16.5% on a YTD (year-to-date) basis. Panera Bread and Shake Shack (SHAK) have returned 12.3% and -7.1%, respectively, on a YTD basis.

Series overview

In this series, we’ll look at changes in analysts’ estimates for Chipotle’s revenue, SSSG, EBIT (earnings before interest and tax) margin, and EPS for the next four quarters. Finally, we’ll look at Chipotle’s valuation multiple and analysts’ recent recommendations and target prices for the next 12 months.

Let’s start by looking at analysts’ SSSG estimates for the next four quarters.

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