After posting lower-than-expected 3Q16 earnings on October 25, 2016, Chipotle Mexican Grill’s (CMG) stock price declined to $368 on October 26, 2016. However, on November 18, 2016, a report by David Benoit and Julie Jargon at the Wall Street Journal stated that Bill Ackman, Owner of Pershing Square, and Chipotle were closing an agreement that will give a board seat to Pershing Square in Chipotle.
The WSJ report also noted that the settlement was expected to avoid a public battle between Ackman and Chipotle. This raised investor confidence, leading to a rise in Chipotle’s share price. As of November 25, 2016, Chipotle was trading at $410.3—a growth of 11.5% since October 26, 2016.
Chipotle’s share price took a hit from food safety issues in October 2015, causing the stock to fall 33.8% in fiscal 2015. The company has continued to struggle in fiscal 2016, with the share price falling 8.6% YTD (year-to-date) as of November 25. As of the same date, peers Panera Bread (PNRA) and Shake Shack (SHAK) have returned 13.8% and -1.6%, respectively, YTD.
The Consumer Discretionary Select Sector SPDR Fund (XLY) has returned 8% YTD. Notably, XLY has more than 9.5% of its holdings in restaurant companies including McDonald’s (MCD), Starbucks (SBUX), and Yum! Brands (YUM).
In this series, we’ll look at analysts’ estimates for revenue, EBIT (earnings before interest and tax) margins, and EPS (earnings per share) for the next four quarters. We’ll also look at Chipotle’s valuation multiple, recent analyst recommendations, and target prices for the next 12 months.
Let’s start by examining the analyst revenue estimates for the next four quarters.