Chipotle Mexican Grill (CMG) has been on fire for a while now. Estimates just continue to climb, driving the share price to all-time highs.
However, shares of CMG have been under pressure lately, but that just makes a good entry point for this Zacks #1 Rank (Strong Buy).
Company Description
Chipotle is a fast food restaurant offering burritos, tacos, and other variations of standard Mexican dishes. The company focuses on fresh ingredients, naturally raised animals and makes efforts to procure local produce.
Surprises Just Keep Coming
On Oct 21 Chipotle announced its eight consecutive earnings surprise. Third quarter revenue jumped 23% of the same period a year ago, to $477 million. Same store sales improved more than 11%, showing a nice mix of improving on the existing, as well as expansion.
Net income surged 40% to $48.2 million. Earnings per share came in at $1.52, which was 22 cents better than expected.
Strong Estimate Revisions
On the earnings news the Zacks Consensus Estimate for 2010 was up 35 cents, to $5.47. Next year’s forecasts rose 46 cents and now sit at $6.58. If the burrito makers can hit those marks, annual growth rates will be 39% and 20%, respectively.
Scary Multiples
Valuations for CMG will send just about any value investor running in the opposite direction. However, these valuations remain in line with the company’s historic averages.
The forward P/E is in the low 40’s and the PEG ratio is coming in at 2.1. But, as long as those estimates keep rising, it should be enough to push shares higher.
Some take a look at the industry comparisons and don’t mind the price tag. Chipotle is the top rated of 42 restaurants on Zacks.com. With an ROE of 22.3% compared to its peers’ average of 15.2%. The net profit margin of 9.4% is almost triple the industry average.
The Chart
Shares of CMG have been on a tear for over a year now. But you can see that they are merely trying to keep up with those estimate revisions. The stock has dipped recently, which makes for a nice buying opportunity.
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Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Small Cap Trader service
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