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.
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
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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