Chipotle spices things up for investors

With its latest earnings leaving expectations way behind, it's proving that Taco Bell isn't as big a threat as many said.

By Jonathan Berr Jul 22, 2013 9:41AM
Chipotle Mexican Grill (CMG) celebrated its 20th anniversary in style after reporting outstanding quarterly results on Friday, countering naysayers who've argued that rival Taco Bell was eating its lunch.

Net income at the restaurant chain known for its burritos surged 7.6% to $87.9 million, or $2.82 per share, versus $81.7 million, or $2.56 per share, a year earlier. Revenue soared, up 18.2% to $816.8 million, even as Chipotle faced higher commodity costs. Comparable-store sales, a key measure of sales at locations open at least a year, rose an astounding 5.5%.
The results were better than the $2.81 profit and the 3.8% same-store sales gain analysts predicted. Chipotle expects revenue from existing locations this year will rise in "the low- to mid-single-digit" percentages compared with its earlier forecast of "flat to low-single-digit" growth

File photo of Chipotle Mexican Grill in Beverly Hills, Calif. (© GUS RUELAS/Newscom/RTR)Shares of Chipotle have generally moved up this year, but not without pressure as some on Wall Street argued that its growth prospects were limited and its stock overvalued, especially given the competition from Yum Brands' (YUM) Taco Bell. The rival chain posted U.S. same-store sales gain of 3% in the recent quarter, outperforming its Yum-owned brethren KFC and Pizza Hut.

Money manager Jeffrey Gundlach, CEO of DoubleLine Capital, was quoted by Bloomberg News in May urging investors to short Chipotle stock, or bet that its price will fall. Many investors seemed to agree with Gundlach. Still, shares of Chipotle are up about 0.7% over the past 52 weeks and nearly 37% year-to-date.

Chipotle trades at a price-to-earnings ratio around 42. That's pricey, but still below the shares' five-year high of 49.9. At Friday’s close of $408.51, the stock is trading well ahead of analysts' average 52-week price target of $384.63, so there's no rush to buy now.

Investors should wait for a pullback before moving into Chipotle. After all, if Wall Street underestimated the company once, it could do so again.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.

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5Comments
Jul 22, 2013 11:44AM
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Chipotle's meats are growth hormone and antibiotic free. Also, they have pledged to be rBGH free and GMO free by the end of the year...100% organic. As a result, I dine there a lot more often.
Jul 22, 2013 12:39PM
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Their food tastes very good and it seems healthy. But, it's the seating that's a problem: little metal tables that are too close together with little hard seated wooden chair seats. Put in some nice padded booths and they might have something. 
Jul 22, 2013 12:34PM
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I can't see the word "Chipotle" without remembering that South Park episode with Billy Mays trying to sell "Chipotle-away" to get blood stains out of underwear.  That was good TV.
Jul 22, 2013 12:09PM
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there are no shortage of fast food places that profess to being "growth hormone" and "antibiotic" free.  How would we dumbed down consumers know if they weren't...how would we even know what that means food-wise?   Someone kills all the animals we love to eat....and  as if that isn't ugly enough.we just don't want to hear anything unsavory about our food.  Grow your own food and don't eat food based on the politics of money...or shut up!
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