Chipotle Mexican Grill’s stock price has rallied over 40% in the last 4 months, reaching an all-time high this week ahead of its Q4 2023 earnings results expected after the bell Tuesday. Analysts and investors are optimistic about the fast-casual chain’s growth prospects, digital innovation, and menu improvements. However, Chipotle faces challenges from a slowing economy and tough year-over-year comparisons.
Recent Stock Price Performance Reflects Broader Growth Trends
Chipotle’s stock is up 11% year-to-date, significantly outperforming the S&P 500. The company has beat earnings expectations for four straight quarters. Sales growth remained remarkably steady through 2022 and into 2023 despite inflationary pressures across the restaurant industry.
Same-store sales grew 7.6% in Q3 2023 on top of a meteoric 25.1% increase the prior year. Digital sales now make up 42% of Chipotle’s business, as customers have embraced convenient ordering through its app and loyalty program. Menu price increases have also boosted revenue without deterring customers so far.
As seen in the chart below, Chipotle’s stock has skyrocketed over 370% in the last 5 years on the back of impressive growth:
| Date | Closing Stock Price | % Increase (5 Years) |
|---|
Feb 4 2019 | $474.57 | – |
Feb 4 2024 | $1,924.82| +306% |
“Chipotle remains one of the strongest stocks in the restaurant industry,” said MarketBeat analyst John Divine. “Its category-leading digital penetration and embrace of higher menu prices give it an advantage.”
Menu innovation around new protein options like smoked brisket and pollo asado also continue to drive traffic and ticket sizes higher. The pollo asado launch last quarter was one of Chipotle’s most successful ever.
Q4 Comps Face High Hurdle from Prior Year
The main focus heading into Chipotle’s earnings report will be on Q4 comps. Analysts forecast same-store sales growth to decelerate from Q3’s mid-single digit pace to +4.6% year-over-year. This still represents solid growth on top of a stellar +15.2% comp in Q4 2022.
Transaction counts may moderate given difficult comparisons, but higher menu prices should continue providing a tailwind. Most analysts seem confident in management’s ability to balance traffic, ticket size, margins, and customer satisfaction.
JPMorgan analyst Jon Tower noted labor and commodities inflation also appear to be stabilizing. His model implies comps growth could re-accelerate back above 6% by the second half of 2024 on easier comparisons.
Guidance and Profit Outlook Remain Strong Despite Macro Uncertainty
Beyond Q4 results, the market will be listening closely for Chipotle’s outlook commentary. Many restaurant chains have issued conservative guidance lately amid concerns over a potential recession.
However, analysts point to Chipotle’s resiliency over the past several years and its high-income customer base. Piper Sandler analyst Nicole Miller Regan believes normalized mid-to-high single digit comp growth is sustainable for the long run. She also sees room for margins to expand another 200 basis points.
Consensus estimates call for Q4 adjusted EPS of $8.29, up 17% year-over-year on revenue growth of 8%. Analysts also expect Chipotle to issue initial 2024 guidance largely in-line with 2023’s stellar mid-teens earnings growth pace.
While uncertainty persists on exactly how discretionary spending trends shape up, the level of pessimism seems appropriately priced into shares at current levels. Continued execution could send Chipotle’s stock even higher through 2024.
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