Categories Analysis, Consumer

Chipotle Mexican Grill (CMG) stock in cautious stance on growth concerns

Shares of Chipotle Mexican Grill Inc. (NYSE: CMG) opened higher on Monday but dived into the red territory on future growth concerns. The stock has been under tremendous pressure and has fallen over 17% since reaching a record high of $940.28 on February 20. Also, the coronavirus outbreak continues to pressurize the restaurant industry.

There were more than 82,000 confirmed cases of coronavirus worldwide and the virus is spreading quickly outside the China region. As of Friday, there were only 59 confirmed cases in the US and the public health officials fear that the virus is likely to spread at a faster pace. Many experts believe the rapid spread has made the virus a global pandemic.

Image for representation. Courtesy: Zakaria Zayane on Unsplash

This continues to put more pressure on restaurant firms, who are developing a pandemic plan. Already, the contingency plans were carried out by the government authorities in order to prevent the spread of influenza by canceling mass gatherings and school closures. This is likely to hurt the restaurant firms both in the near-term and long-term.

In the near-term, the company’s margins and profits are likely to be threatened by variance in food safety protocols and national concerns from current and former employees. Along with this, the restaurants remaining shut due to coronavirus could increase the costs and lessen the profitability.

As of December 31, 2019, the company operated 2,580 Chipotle restaurants throughout the US, 39 international Chipotle restaurants, and three non-Chipotle restaurants. The company, which opened 80 new restaurants in the fourth quarter, plans to open a significant number of new restaurants in the next few years.

For the fourth quarter, Chipotle reported a 122% jump in earnings as a 13.4% increase in comparable restaurant sales and new restaurant openings drove the top line higher. Digital sales grew 78.3% and accounted for 19.6% of sales.

Read: Papa John’s Q4 earnings

For fiscal 2020, the comparable sales growth is expected to be in the mid-single-digit despite significant restaurant-level margin expansion. The company could be beneficial by the cautious shift to more personalized marketing for loyalty members, who are expected to increase the frequency and spend. This could drive transaction growth and margin expansion.

The shares of Chipotle ended Monday’s regular session down 0.62% at $768.81. This is below the 50-day moving average of $874.98 and the 200-day moving average of $827.94. Despite showing a negative performance outlook in the near and long-term, the stock at current levels remains nearly fair-valued.

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