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Chipotle: Has the Stock Price Bottomed Out?

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Jun. 5 2019, Updated 11:54 a.m. ET

Stock performance

Chipotle Mexican Grill (CMG) posted better-than-expected first-quarter earnings on April 24. For the quarter ending on March 31, the company posted an adjusted EPS of $3.40, which beat analysts’ estimate of $3.01 by 13.0%. The company outperformed analysts’ SSSG (same-store sales growth) and revenue estimates. Strong first-quarter earnings and investors’ optimism about the company implementing digital advancements caused the stock price to rise to a 52-week high of $727.0 on May 20.

On May 23, BMO Capital Markets downgraded the stock from “market perform” to “underperform.” There are concerns about rising commodity prices due to African Swine Fever. BMO cut its 12-month target price from $675 to $620.

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On May 30, President Trump threatened to impose a 5% tariff on all of the imports from Mexico. He wants Mexico to stem the flow of illegal immigrants to the US. The proposed tariffs will increase gradually and reach 25% later in 2019. Chipotle’s management has estimated that implementing the proposed tariffs could increase its expenses by $15 million. Higher expenses would likely have a negative impact on Chipotle’s margins by 20–30 basis points. However, the company’s management plans to improve its efficiency and make modest price hikes to its menu items to mitigate the effects of the tariffs on its EPS. BMO downgrading Chipotle stock and the proposed tariffs on Mexican imports caused the stock price to fall. As of June 4, Chipotle was trading at $662.18, which represents a fall of 8.9% from its 52-week high.

YTD performance

Despite the recent decline in Chipotle’s stock price, it has returned 53.4% YTD (year-to-date) as of June 4. During the same period, Shake Shack (SHAK) and McDonald’s (MCD) have returned 34.3% and 12.4%, respectively. Chipotle also has outperformed the broader equity market. The S&P 500 Index has risen 14.1% YTD.

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