Can Chipotle’s stock continue to rise in 2022? (NYSE: CMG)

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Summary in seconds

I rate Chipotle Mexican Grill, Inc. (CMG) stock as a hold. My previous article for CMG published on August 11, 2021 analyzed the pros and cons of a stock split, and I came to the conclusion that a stock split for Chipotle is “unlikely and unnecessary.” As of this writing, there is no indication that CMG is considering a stock split. In this article, I discuss Chipotle’s business and market outlook for 2022.

Substantial appreciation in Chipotle’s share price in 2022 is not likely based on my assessment of the company’s financial outlook for 2022 and its current valuations. On the other hand, CMG has a long growth track as evidenced by its long-term unit growth potential. Considering both short-term headwinds and long-term growth opportunities for the company, a Hold rating for CMG is fair.

Key CMG Stock Metrics

CMG’s financial performance was decent in the fourth quarter of 2021. The company’s fourth quarter 2021 revenue met market expectations, while its recent non-GAAP quarterly adjusted earnings per share were better than Wall Street expected. expected.

Chipotle’s revenue increased +22% year-over-year to $1,961 million in the most recent quarter, as reported in its fourth quarter 2021 financial results press release, and that figure was slightly lower. higher than the sell-side consensus estimate of $1.96 billion. Separately, CMG’s adjusted earnings per share jumped +60% year-on-year, from $3.48 in Q4 2020 to $5.58 in Q4 2021, +5% higher than net income forecast by the market consensus for the fourth quarter of $3.48 per share.

The company also performed well on a number of other metrics over the past quarter. The +15.2% growth in restaurant comparable sales in the fourth quarter of 2021 was above Wall Street consensus expectations of a +14.9% increase according to S&P Capital IQ The data. Chipotle also exceeded expectations for new restaurant openings, as it added 215 new restaurants in 2021, which was better than its previous forecast of 200 new restaurant openings last year. Additionally, CMG disclosed during the company’s fourth quarter 2021 earnings call that its loyalty program membership grew from 24.5 million in the third quarter of 2021 to 26.5 million in the fourth quarter of 2021. .

Despite posting a reasonably good set of results in the fourth quarter of 2021, Chipotle’s current stock price is still well below its all-time highs.

What is the highest chipotle stock of all time?

Chipotle hit its all-time high in the stock price of $1,958.55 on September 23, 2021 in intraday trading, and its last traded stock price of $1,442.28 on March 4, 2022 represents a correction of -26. % from its all-time high.

CMG Share Price Performance Following Fourth Quarter Earnings Announcement

GCM

Looking for Alpha

Although Chipotle shares rose +10% the day after the release of fourth quarter 2021 results, the company’s stock price outperformance against the S&P 500 has narrowed in recent weeks, as shown by the graph above.

In the next section, I focus on the outlook for CMG’s stock price in 2022 and determine whether it is possible for Chipotle stock to return to its all-time high.

Can Chipotle’s stock rise further in 2022?

Chipotle shares have done quite well in 2021, rising +32.5% last year, which was slightly better than the +30.6% rise in the S&P 500 over the same period. Year-to-date 2022, CMG’s stock price has fallen -17.5%, which is worse than the S&P 500’s 8.9% decline this year so far.

In my view, it will be difficult for Chipotle to sustain the positive share price momentum from 2021 and reverse the year-to-date decline in the share price in 2022.

CMG is expected to see a substantial slowdown in the company’s revenue and net income growth for fiscal 2022. According to financial forecasts from S&P Capital IQ, Chipotle’s revenue growth is expected to decline from +26.1% in fiscal 2021 to +14.9% in fiscal 2022. The company’s adjusted earnings per share growth is expected to normalize from +136.9% last year to +23.8% this year. These consensus estimates are supported by Chipotle’s January 2022 disclosures and first quarter 2022 guidance.

During the company’s latest Q4 2021 earnings briefing, Chipotle disclosed that its comparable restaurant sales growth was only +5% in January 2022, which it attributed to both the pandemic and adverse weather conditions. More importantly, CMG guided Q1 2022 restaurant same-store sales growth in the “mid to high single digit range”, which is well below the +19.3% and +15 increase. 2% of comparable restaurant sales for fiscal 2021 and the fourth quarter. 2021, respectively.

Regarding profitability, Chipotle expects “underlying first quarter (restaurant-level operating) margin to be between 23% and 10%” when adjusted for “expenses.” high marketing” and “transient COVID-related cost pressures.” CMG’s overall operating margin at the restaurant level in the first quarter without these adjustments is expected to be approximately 22%, which is lower than the Company’s operating margin of 22.6% for fiscal 2021 at the restaurant level. That’s no big surprise, as inflationary pressures related to food and labor are expected to further dampen Chipotle’s profitability this year.

Going forward, Chipotle could potentially increase prices again (previous price increase was +4% in December 2021) for the remainder of 2022 to offset cost pressures, but it’s unclear what impact this will have. on request. CMG emphasized in its Q4 2021 investor briefing that “we still have pricing power to use as needed if inflation continues to rise,” but also emphasized that it “will be thoughtful and patient when we will consider these actions”.

In addition to the more modest financial outlook this year, Chipotle’s shares are fairly fairly priced, which limits the potential for capital appreciation for the stock in 2022. The market currently values ​​CMG at a consensus P/E multiple of the next twelve months of 45.8 times according to S&P Capital IQ, which is slightly lower than its 10-year average PE multiple of 48.0 times. Chipotle’s current P/E valuations are also broadly in line with its CAGR of +14.4% on FY 2022-24 revenue and FY 2022-24 ROE of between 30-40% on the basis of consensus sell-side forecasts.

In summary, I think a significant rise in Chipotle’s stock price in 2022 is less likely.

Is CMG stock a good long-term buy?

Despite the short-term challenges described in the previous section, CMG stock is a good long-term investment candidate when valuations are more attractive and the short-term outlook becomes favourable.

There are two key indicators that support expectations of a long growth path for Chipotle.

The first indicator is the ceiling of the company’s store footprint in North America.

CMG has a network of 2,966 outlets at the end of 2021, and this represents approximately 43% of the 7,000 Chipotle restaurants it believes the North American market can support, as stated in its press release on results for the fourth quarter of 2021. More importantly, this new long-term forecast is 17% higher than its previous expectation of having 6,000 restaurants in North America. Chipotle explained during its fourth quarter earnings call that its confidence in a larger store footprint stems from “the success of small-town opportunities that offer equal or better unit savings than our traditional locations.”

The second indicator is annual unit growth.

Chipotle mentioned in the company’s fourth quarter earnings press release that it can achieve +8% to 10% unit growth for each year in the medium term. That’s much better than the company’s 2022 new restaurant opening forecast of between 230 and 250, which points to unit growth in the range of +7.9% to 8.4%.

In my August 2021 update for CMG, I mentioned “Chipotlane” or what the company describes as its “digital steering wheel control support lane” which “first launched in 2018”. As Chipotlanes supports “higher margin digital sales”, CMG is able to open new restaurants that come with Chipotlanes in small towns where physical sales alone were not enough to support new store openings in these places. Notably, CMG expects at least 80% of new restaurants opening in the future to have Chipotlanes. In other words, the success of Chipotlanes allowed CMG to expand its total addressable market.

In a nutshell, Chipotle’s long-term growth prospects are excellent from a long-term unit growth opportunity perspective.

Is CMG stock a buy, sell or hold?

The CMG action is pending. Chipotle is an attractive candidate for long-term investments, as I detailed in the previous section. But CMG isn’t a buy now, as its current valuations aren’t attractive and it’s expected to see much slower growth in 2022.

About Jason Norton

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