Chipotle Mexican Grill (NYSE: CMG) is the best-in-breed among restaurants for many reasons. CEO Brian Niccol resurrected this failing story with a lean into modernization and quality that continues to drive growth today. The Q4 results and guidance takeaway is that growth is accelerating sequentially and YOY, pointing to another solid year in 2024. The trends suggest a move to the top of the analysts' expected price range for CMG share price; because the Q4 results and guidance are favorable, upward revisions should continue, and a move to $3,000 is likely.
Chipotle leverages growth with digital access
Chipotle Mexican Grill had a smoking quarter with revenue of $2.52 billion, growing 15.4% compared to the prior year. The gain is driven by increased comp traffic that left the take 120 basis points above the Marketbeat.com consensus. Comps came in at 8.4% on a 7.4% increase in ticket count and a 1.0 increase in check average aided by 121 new stores. The new stores include 110 new Chipotlances, which is a critical detail. Chipotlanes open access to digital markets, accounting for 36% of sales and growing. Chipotlanes also improve revenue compared to non-Chipotlance locations, resulting in wider margins.
The margin news is tasty. Chipotle Mexican Grill widened the restaurant level operating margin by 140 bps and the operating margin by 80 bps as increased food costs were offset by savings in other categories, including paper goods. Net and adjusted net income growth accelerated because of the margin strength, leaving the $10.36 adjusted EPS up 25% YOY.
Guidance is robust. The company expects a mid-single-digit increase in comp-store sales compounded by 2023’s 7.8% increase in store count and another 8.7% forecasted for 2024. Analysts forecast 13.5% top-line growth and wider margins. The company’s long-term goals are also robust and include expanding the store count by 100%. In this light, the 46X 2024 earnings it is trading for is a bargain. The company is also on track for international expansion and has announced its first partner. That is Alshaya Group; the first international locations are expected this year in Dubai and Kuwait.
Chipotle serves up value for investors
Chipotle Mexican Grill generates ample cash flow, with $282 million reported in Q4. That’s an income margin of 11.2%, and cash flow is unimpeded by long-term debt. Cash flow is used to grow the company’s footprint, invest in personnel and technology, and improve the balance and shareholder value.
The company repurchased $144.3 million in shares in Q4 for a FY total of nearly $590 million. This is sufficient to offset share-based compensation, and the basic and diluted share count is lower than last year. The diluted count is down 1%, compounding the increase in cash, current and total assets, aiding the 16% increase in shareholder equity. Because the board upped the repurchase authorization by $200 million, doubling the remaining portion of the previous authorization, repurchases are expected to continue in 2024.
The technical outlook: Chipotle sets new high
Chipotle Mexican Grill's price action increased 3% following the announcement to set a new all-time high in after-hours trading. The move extends the gap above the analysts' consensus target, but the analysts are already raising their estimates. The first to pop up is from Morgan Stanley, reiterating its Equal Weight rating while raising its target to an above-consensus $2.500. There have been ten price target revisions since January 1st, all upward and all but one above the consensus. This trend should continue now that guidance is set.
The next target for significant resistance is near $2,800. That is the current high price target set by analysts. Because the market is in rally mode now, CMG shares may reach that target before mid-year. Assuming that results continue to impress, that target should easily fall as new, higher targets are set.
