Chipotle Mexican Grill stock soars to 3-year high

Chipotle Mexican Grill Inc. (NYSE: CMG) stock soared to a 39-month high of $612.60 on Tuesday. Investors turned methodical on the future of the fast-casual restaurant chain as they were satisfied with the recent fourth-quarter results. Traders have believed the stock to be a good investment and the current levels called for a hold.

The majority of the analysts recommended a “hold” rating on the stock. Wall Street analysts covering the stock expect it to fall and reach $495.44 in the next 52 weeks. Few of them have suggested a sell due to the return yielding aspect as the good times may not last long.

They have valued the opening of the 2,500th restaurant at The Shops at Todos Santos in Concord, California to be a tangible example of its continued growth. The company has hired Roger Theodoredis as its chief legal officer and Tabassum Zalotrawala as a chief development officer, which is increasingly vital as Chipotle continues opening restaurants.

Also, Chipotle recently shared its plans to open 140 to 155 new restaurant locations this year but these openings will be weighted towards the second half of the year. The company expects about 10% of the openings to occur in the first quarter and about 25% in the second quarter. Chipotle has also implemented new ways to improve the restaurant experience, such as drive-up pickup lanes, in-store pickup shelves, and tech-enabled second make lines.

In the recent fourth quarter, the company’s bottom line fell by 26.8% due to higher costs and expenses. However, revenue increased 10.4% driven by a 6.1% increase in comparable restaurant sales and new restaurant openings. An increase in average check and a 2% rise in comparable restaurant transactions drove comp sales higher. In Q4, digital sales jumped 65.6%, accounting for about 13% of overall sales.

Also read: Chipotle Mexican Grill Q4 earnings conference call transcript

Chipotle has been reconsidering its menu for attracting diet-conscious customers by including healthier options. The company opened 137 new restaurants with industry-leading returns in 2018 and is expanding the reach of its digital system for its existing restaurants. App downloads increased 72% year-over-year in 2018 and Chipotle continued to see strong interest from new and frequent guests.

Despite a relatively low base, the company’s delivery sales for the fourth quarter increased roughly 13-fold compared to the previous year quarter. In the latter part of December, growth was driven by the free delivery bowl promotion that offset normally expected seasonality.

Chipotle expects food costs to be about 33% in the first quarter as the slight leverage from the December menu price increase is largely offset by an expected increase in beef prices. Food costs for the full year are expected to be about 33% as an expected rise in avocado prices this summer will be offset by other efficiencies.

In 2019, the company expects capital expenditures to be around $300 million with around 40% to 45% invested in new restaurants, 30% to be invested in growth-related initiatives, including digitized second make lines and digital pickup shelves and the balance invested in normal upkeep of its restaurants and strategic corporate initiatives.

The rising costs were ignored by the investors as digital sales could provide revenue growth opportunities in the future. However, the road could be tough as competition in this space invariably grows.

Shares of Chipotle ended Tuesday’s regular session down 1.61% at $593.66 on the NYSE. The stock has risen 133% in the past year and over 21% in the past three months.

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