Trading Analysis: What to expect from Chipotle Mexican Grill's earnings
By Colin Cieszynski, CFA, CMT, Chief Market Strategist and Jasper Lawler, Market Analyst, CMC Markets
Following dismal results from McDonald’s that led to the departure of its CEO; up and coming rival Chipotle Mexican Grill is going from strength to strength with expectations of rising top and bottom line earnings but a slight decrease in same-store sales.
Chipotle’s commitment to organic fresh produce stands it front and centre in the growing “fast casual” restaurant sector. Some commodities such as beef are close to multi-year highs and that increases Chipotle’s costs but so far though demand for Chipotle’s premium products has been inelastic to the passed-on higher prices.
Chipotle shares have been resting above $700 since the beginning of the year and if earnings impress could be set to make the next leg higher in what has been a six-year uptrend.
Chipotle is expected to report EPS of $3.79 up 49% from last year on sales of $1.07B up 27% over year. Last quarter earnings beat the street by a wide margin $4.15 to $3.83 on sales of $1.08B. The shares are trading around 42x forward P/E way above its forecast long-term growth rate of 22.7%, so the company needs to keep delivering strong growth to justify its growth stock valuation.
In contrast, McDonalds missed badly on earnings $1.13 below street $1.22. Over the last year, Chipotle has consistently eaten McDonalds lunch (pun fully intended). Today’s results could indicate if this trend is continuing but upcoming quarters could be even more interesting as the Golden Arches’ new CEO tries to fight back.
Data Source: Bloomberg L.P.
Source: CMC Markets
Following a late spring and early summer rally, Chipotle shares consolidated between $605 and $700 through the back half of 2014. Last month, the shares broke out of an ascending triangle and have been digesting the move between $700 and $730.
A breakout from the channel would signal the start of a new upleg that could challenge measured moves near $670 or $695. Further downside support below the channel appears at the 50-day average near $680.
RSI drifting back toward 50 suggests upward momentum slowing so it could remain in its current channel if results come in relatively close to expectations.