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How Chipotle Outperformed Analysts’ Estimates in 1Q17

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1Q17 earnings

Chipotle Mexican Grill (CMG) posted EPS (earnings per share) of $1.60 in 1Q17, representing a rise of 281% compared to its EPS of -$0.88 in 1Q16. Analysts were expecting the company to post EPS of $1.27.

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Factors that drove Chipotle’s earnings

Chipotle’s 1Q17 earnings were driven by revenue growth, expansion of EBIT (earnings before interest and tax) margins, and share repurchases in the last 12 months. In the last 12 months, the company has repurchased shares worth $381.3 million. Share repurchases reduce a company’s number of shares outstanding, boosting its earnings.

In the above graph, we can see that in the last five quarters, the company has outperformed analysts’ estimate twice. When this happens, a company’s stock price tends to rise. After the announcement of its 1Q17 earnings, Chipotle’s stock price rose 2.4% on April 26, 2017.

Peer comparison

In 1Q17, Panera Bread (PNRA) posted EPS growth of 17.3%, while analysts are expecting Shake Shack’s (SHAK) EPS to rise 3.4%.

Outlook

Analysts expect Chipotle to post EPS of $9.31 in the next four quarters, representing a rise of 144.2% from $3.81 in the corresponding quarters of the previous year. This EPS growth is expected to be driven by revenue growth, expanding EBIT margins, and share repurchases. By the end of 1Q17, the company had $144.6 million under its share repurchase program.

Next, we’ll look at Chipotle’s valuation multiple.

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