uploads/2020/02/chipotle-earnings.jpg

Why Jim Cramer Recommends a ‘Buy’ for Chipotle

By

Updated

Chipotle Mexico Grill (NYSE:CMG) will report its first-quarter earnings today after the market closes. Before the company’s earnings, it received a boost from Mad Money host Jim Cramer. On Monday, during the lighting round on CNBC, Cramer was asked about Chipotle. He said, “I think Chipotle’s good if you can get it under $800. Remember: this is a stock that is kind of impervious. Why? Because it’s got a great balance sheet and that’s what we’re looking at is balance sheets.”

Article continues below advertisement

Analysts’ recommendations for Chipotle

Since the beginning of April, many analysts have lowered their target prices. On Monday, UBS cut its target price from $925 to $800. Earlier, Wedbush cut its target price from $980 to $869, while Credit Suisse lowered its target price from $1,010 to $900. Jefferies reduced its target price from $750 to $550. As of April 20, analysts’ consensus target price is $822.38, which represents a 12-month return potential of 1.7%.

Among the 33 analysts that follow Chipotle, 51.5% recommend a “buy,” 45.5% recommend a “hold,” and 3.0% recommend a “sell.” Earlier this month, the company’s CFO expressed confidence about riding out the COVID-19 storm. To learn more, read Chipotle’s CFO Is Confident despite COVID-19 Storm.

For the first quarter, analysts expect Chipotle to report revenue of $1.42 billion and an adjusted EPS of $2.91. Read Will Chipotle Meet Analysts’ Q1 Expectations? to learn more.

Stock performance

Amid concerns about COVID-19, Chipotle stock declined to a low of $415 on March 18. Since then, the company has made a significant recovery. As of April 20, Chipotle was trading at $808.73, which represents a rise of 94.9% from its March 18 lows. The company’s stock price rose due to the euphoria surrounding the clearance of the $2 trillion stimulus package and optimism about the company implementing digital advancements and delivery. However, Chipotle is still trading at a 14% discount from its 52-week high of $940.28.

So far, Chipotle has lost 3.4% of its stock value YTD. Despite the fall, the company has outperformed its peers and the broader equity market. During the same period, McDonald’s (NYSE:MCD), Starbucks (NASDAQ:SBUX), and Shake Shack (NYSE:SHAK) fell by 8.1%, 14.3%, and 22.1%, respectively. Meanwhile, the S&P 500 Index has declined by 12.6% this year.

I have high regard for Chipotle’s management. Also, I’m optimistic about the company’s growth initiatives. However, I think that investors should wait until the company reports its first-quarter earnings before making any investment decisions. During the earnings call, I want to hear from Chipotle’s management about its future outlook.

Advertisement

More From Market Realist