Analysts are highly optimistic about Chipotle Mexican Grill's upcoming fourth-quarter earnings report. According to FactSet consensus estimates, analysts are forecasting an earnings per share of $9.71 on revenue of $2.49 billion. Additionally, same-store sales, which measure sales from stores open for more than a year, are expected to show a 7.1% increase.
Recent adjustments to earnings estimates have only strengthened confidence in Chipotle’s ability to meet these targets. In the past week alone, earnings estimates have been revised 0.2% higher and have seen a 1.5% increase over the past three months, based on data from FactSet.
Sharon Zackfia, an analyst at William Blair, expressed strong belief in Chipotle's ability to maintain healthy sales and earnings growth in a recent note. She stated, "We believe the visibility on Chipotle maintaining both healthy sales and earnings growth is among the best in publicly traded restaurants."
Chipotle will release its earnings report after the market closes on Tuesday, followed by an investor call scheduled for 4:30 p.m. Eastern time.
Throughout this year, shares of Chipotle have seen a notable 8.3% increase, outperforming the S&P 500's 3.8% gain and the AdvisorShares Restaurant ETF's 2% gain.
However, it is important to note that the market's optimism may have an underlying downside. Chipotle's stock is relatively expensive with shares currently trading at 45.6 times forward earnings, well above its competitors. In comparison, the AdvisorShares Restaurant ETF has a P/E ratio of 23.2. Such high multiples indicate that the stock is priced for perfection and investors may not settle for a lackluster report.
Encouraging Signs for Chipotle
Positive Fourth Quarter Results
Encouragingly for Chipotle, the fourth quarter ended on a positive note in late December. Despite a decline in foot traffic by 1.6% across the rest of the fast-food industry, Chipotle managed to achieve a 4.3% increase in foot traffic compared to the previous year, according to data from Placer.ai. This success sets Chipotle apart from its competitors and positions it favorably in the market.
Room for Growth
Chipotle still has room to increase prices to offset rising labor costs and other expenses. This move could have a positive impact on their overall profitability.
According to UBS analyst Dennis Geiger, "The company's traffic momentum and growth opportunities alone deserve a premium." He further highlights Chipotle as one of the best-positioned brands in the sector for traffic outperformance and margin gains into 2024.
Concerns and Potential Solutions
However, there are concerns that Chipotle may need to adjust its guidance for the first fiscal quarter slightly lower. This adjustment would reflect a slowdown in restaurant industry sales, mainly due to January's colder-than-expected weather. Nevertheless, these concerns may already be factored into the market's expectations.
Jon Tower, an analyst at Citi, acknowledges this drop-off and writes, "Like other restaurants, Chipotle saw a year-over-year decline in the start of FY24 due to weather conditions. However, this should come as little surprise to investors."
Conclusion
Looking ahead, Chipotle remains well-positioned in the market based on its strong traffic performance and growth opportunities. Despite potential adjustments in guidance due to external factors, such as weather, Chipotle's dependable growth outlook remains highly valued.
