- Chipotle stock has risen about 89% YTD (year-to-date).
- Cowen upgraded Chipotle stock to “outperform.”
- A stellar financial performance could drive the stock higher.
Chipotle’s stock performance
Chipotle Mexican Grill (CMG) has made investors rich. Bill Ackman’s Pershing Square Holdings has benefited significantly from its investment in the stock. So far this year, Chipotle stock has outperformed the broader markets by a wide margin. The stock has risen nearly 89% YTD. In comparison, the S&P 500 has risen about 25%.
Chipotle stock is trading about 5% lower than its 52-week high of $857.90. Meanwhile, the stock is trading about 113% above its 52-week low of $383.20. In comparison, Wendy’s (WEN), McDonald’s (MCD), Yum! Brands (YUM), Dunkin’ Brands (DNKN), and Starbucks (SBUX) shares have risen 38.1%, 9.3%, 8.5%, 17.4%, and 31.3%, respectively, YTD.
What’s behind the stock’s outperformance?
The uptrend in Chipotle stock is due to the company’s strong financial performance over the past several quarters. The company’s top line has grown at a double-digit rate in the past four consecutive quarters. Also, Chipotle’s comps growth has accelerated for seven consecutive quarters, which is commendable.
The company’s EPS is growing at a breakneck pace. In 2018, Chipotle’s bottom line marked about 37% growth. Meanwhile, the company’s bottom line has increased about 60% and 39%, respectively, in the first two quarters of 2019. The EPS growth accelerated in the third quarter. Likewise, the third-quarter EPS rose 77%.
We think that the uptrend in Chipotle stock could continue in the coming quarters. The company’s thriving digital sales, menu price increase, the roll-out of drive-thru lanes, and store expansion could continue to drive double-digit revenue growth. Meanwhile, the leverage from sales and higher menu prices will likely drive the company’s margins higher.
We think that robust sales growth and margin expansion could continue to drive Chipotle’s earnings at a double-digit rate. The stellar financial performance will likely support the uptrend in the stock.
Cowen upgraded Chipotle stock
On Tuesday, Cowen upgraded Chipotle stock from “market perform” to “outperform.” Cowen raised the target price to $970 from $800. The new target price reflects a potential upside of about 19% based on the closing price of $815.84 on the same day.
Cowen expects Chipotle’s financials to get a boost from its digital initiatives. Also, drive-thru lanes or Chipotlanes will likely accelerate the growth rate.
The company’s digital sales are growing at a brisk pace. During the last reported quarter, Chipotle’s digital sales rose about 88% and represented 18.3% of the total revenues.
Notably, Chipotle’s digital orders carry a higher average check, which boosts its sales and profitability. Management plans to add 40 new Chipotlanes, which will take the total count to 60. We think that adding Chipotlanes will likely drive the company’s digital sales.
Chipotle stock closed 3.7% higher on Tuesday following the upgrade.
What do analysts’ estimates indicate?
Analysts expect Chipotle to sustain the growth momentum in its sales and earnings. Analysts expect the company’s revenues to continue to grow at a double-digit rate in the fourth quarter. The revenues will likely sustain the growth rate in 2020 despite tough year-over-year comparisons.
Analysts’ estimates indicate that Chipotle’s bottom-line growth could decelerate in the coming quarters due to tough comparisons. However, analysts expect the company’s earnings to sustain double-digit growth. Analysts expect Chipotle’s adjusted EPS to increase 53% in 2019. The adjusted EPS is projected to increase 28% in 2020.
Analysts have a target price of $849.93 on Chipotle stock. The target price indicates a potential upside of 4.2% based on the closing price of $815.84 on Tuesday.