Chipotle earnings preview: Same-store sales growth may have slowed, but digital and delivery are drivers, analysts say


Chipotle Mexican Grill Inc.’s efforts to build its digital and delivery business will pay off well into the future, analysts say.

Chipotle
CMG
is scheduled to report third-quarter earnings on Wednesday after the closing bell.

Chipotle has talked about its digital efforts at length in previous earnings reports. KeyBanc Capital Markets analysts led by Eric Gonzalez highlight Chipotle’s “rapid digital growth [which] has helped the chain’s digital mix sustain in the high-50% range since early 3Q, compared with a pre-COVID-19 mix in the high-20% range and a peak above 70% in late April.”

KeyBanc rates Chipotle stock overweight and raised its price
target to $1,475 from $1,300 in its most recent note.

“We believe Chipotle’s digital sales are proving to be sticky and new customers are increasingly entering the brand through these channels,” KeyBanc said.

See: Kroger to launch two ghost kitchens as food chains get creative during coronavirus

KeyBanc analysts note that the company is lapping the launch of carne asada, driving a “slight deceleration” in same-store sales growth in recent weeks. Carne asada was a successful limited-time menu addition, which the company brought back last month.

“While sick-pay, cleaning supplies, and other COVID-19 costs
might hold back margin potential in the near term, its high digital mix… should
afford it strong flow-through due to efficiencies created by the second make
line in labor, portion control, and food waste,” analysts said.

UBS analysts are also increasingly focused on margins,
however, higher delivery pricing should help.

“While 3Q margins could remain choppy given labor (dining
room reopenings), commodities and delivery, we believe tests of delivery pricing
strategies will likely yield long-term margin and earnings per share benefits,”
analysts wrote.

“We view Chipotle as well-positioned given digital focus, accelerating unit development, and multi-year sales and EPS growth potential.”

UBS rates Chipotle stock neutral with a $1,200 price target.

Also: Online grocery sales will skyrocket but margins take a hit, analysts say

Truist Securities has conducted checks of 50 locations and
found 15%-to-16% delivery price increases compared with an average price
increase of 9% at the beginning of September, which analysts say indicates that
demand is there despite the price hike “and could boost both sales and margins.”

The pricing is still a test Truist says, and the impact on sales will likely be “muted” in the fourth quarter since there was a $3 delivery fee last year, compared with a $1 fee now.

Truist rates Chipotle stock buy with a $1,580 price target.

Wedbush is upbeat about Chipotle’s same-store sales prospects, with analyst checks suggesting acceleration to “at least the very high single digits.” Analysts call their forecast for 7.5% growth in the third quarter “conservative.”

Wedbush rates Chipotle stock outperform with a $1,600 price
target.

Chipotle has an average overweight stock rating and average
target price of $1,338.81, according to 34 analyst ratings tracked by FactSet.

Here’s what else to watch for when Chipotle reports:

Earnings: FactSet forecasts earnings per share of $3.46, down from $3.82 last year, but up from 40 cents per share in the second quarter.

Estimize, which crowdsources estimates from sell-side and
buy-side analysts, hedge-fund managers, executives, academics and others,
forecasts EPS of $3.43.

Chipotle has beat FactSet’s EPS forecast the last 11
quarters.

Revenue: FactSet and Estimize forecast sales of $1.59 billion, up from $1.40 billion last year.

Chipotle has beat the FactSet sales forecast six out of the last seven quarters.

FactSet expects same-store sales growth of 7.3%.

Stock price: Chipotle shares have skyrocketed 60.5% for the year to date. The Consumer Discretionary Select Sector SPDR Fund ETF
XLY
has gained 21.3%. And the S&P 500 index
SPX
is up 7.1% for the period.

Watch: 4 sectors that are well positioned for the stay-at-home economy

Other items:

-Chipotle’s partnership with Grubhub Inc.
GRUB
will be a sales driver, according to RBC Capital Markets. Analysts also think the addition of organic Tractor Beverage Co. to the drinks platform will help sales.

RBC rates Chipotle stock sector perform with a $1,320 price
target, up from $1,250.

– Among its restaurant category coverage, Stifel says Chipotle’s stock performance has only been matched by Wingstop Inc.
WING,
which has seen its shares rise 46.8% for the year to date.

Stifel attributes a September decline in Chipotle’s stock to
aforementioned concerns about same-store sales and the impact from
limited-edition carne asada.

Stifel rates Chipotle stock hold with a $1,400 price target.

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COVID-19 has impacted restaurant promotions, which KeyBanc
says should help Chipotle.

“Like traditional fast food chains, Chipotle is likely
benefiting from an abnormal competitive environment that has seen fewer
discounts, limited competition, reduced marketing investment, and aggressive
government stimulus,” KeyBanc said. “While this is increasingly looking like a
winning cocktail for Chipotle, the real positive outcome in this crisis is the
Company’s rapid digital transaction growth.”



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