On Wednesday, Stephens, a financial services firm, adjusted its price target for Chipotle Mexican Grill (NYSE: NYSE:CMG), reducing it to $65.00 from the previous $66.00. The firm has kept its Equal Weight rating on the stock.
The adjustment follows Chipotle's third-quarter results for 2024, which revealed a slight underperformance in same-store sales. This shortfall was somewhat balanced by robust unit growth, which aligned with Stephens' unit tracker, and marginally improved margins and adjusted earnings per share (EPS).
The analyst from Stephens highlighted that the top performers in the restaurant sector are typically driven by continuous traffic growth that outpaces the industry average. Chipotle is recognized for having a clear potential to generate positive customer traffic in the fourth quarter of 2024 and the full fiscal year 2025. Despite this, the stock's after-hours trading showed a decline of approximately 5%, indicating that the market might have already factored in the anticipated above-industry traffic growth into Chipotle's current share price.
Stephens has decided to maintain its neutral stance on Chipotle's stock, keeping the Equal Weight rating unchanged. The new price target of $65 implies an enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of around 35 times the firm's next twelve months (NTM) EBITDA forecast of $2,548 million. This valuation is compared to the 10-year average trading multiple of approximately 30 times for The Cheesecake Factory (NASDAQ:CAKE), used as a benchmark.
The firm's analysis suggests that while Chipotle has strengths, including its unit development and margin performance, the current stock price may already reflect the positive aspects of the company's outlook. The slight reduction in the price target reflects a cautious approach amidst the market's reaction to the recent earnings report.
In other recent news, Chipotle Mexican Grill reported a slight miss in same-store sales for the third quarter, but an earnings per share beat. The company's revenue increased by about 13% to $2.8 billion, narrowly missing the projected $2.82 billion. Truist Securities raised its price target for Chipotle to $72, maintaining a Buy rating, citing solid same-store sales growth and modest commodity inflation. Barclays (LON:BARC) also adjusted its price target to $60, maintaining an Equalweight rating on the stock.
Analysts from Bernstein SocGen Group maintained an Outperform rating on Chipotle, expressing optimism about the potential of the Smoked Brisket product. Piper Sandler and KeyBanc also reiterated their ratings, with Piper Sandler raising its price target and KeyBanc noting an increase in prices for Chipotle's Smoked Brisket at approximately 77% of its locations.
These are recent developments and reflect the ongoing analysis of Chipotle's performance and potential. Several other firms, including Citi, Goldman Sachs (NYSE:GS), and Oppenheimer, have maintained positive ratings and adjusted their price targets, expressing confidence in Chipotle's future.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Stephens' analysis of Chipotle Mexican Grill. The company's market capitalization stands at $82.84 billion, reflecting its significant presence in the restaurant industry. Chipotle's P/E ratio of 58.8 aligns with Stephens' observation of a high valuation, trading at a premium compared to industry benchmarks.
InvestingPro Tips highlight Chipotle's financial strength, noting that "cash flows can sufficiently cover interest payments" and the company "operates with a moderate level of debt." These factors support Chipotle's ability to continue its unit growth strategy, as mentioned in the Stephens report.
The data also shows a revenue growth of 14.85% over the last twelve months, with quarterly revenue growth at 18.22% in Q2 2024. This robust growth underscores Chipotle's potential for continued expansion and market share gains, which could justify its premium valuation.
For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips for Chipotle Mexican Grill, providing deeper insights into the company's financial health and market position.
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