Shares of Chipotle Mexican Grill, Inc. (CMG), reached a new 52-week high of $613.99 on March 20, 2014, as the share price has been going up ever since it reported strong fourth 2014 results. The shares of this Colorado-based restaurateur eventually closed at $611.58, which reflects a solid year-to-date return of 16.8%.
Despite the strong price appreciation, this Zacks Rank #3 (Hold) stock has plenty of upside left, given its strong expected year-over-year earnings growth of 24.5% for 2014.
Growth Drivers
Chipotle’s fourth-quarter adjusted earnings (reported on Jan 30) of $2.53, climbed 29.7% year over year, driven by improvement in revenues In fact, Chipotle has been a consistent performer, delivering an average earnings beat of 2.1% for the trailing four quarters.
Chipotle’s growth is attributable to the successful menu innovation made by the company, to cater to changes in consumer preferences in the U.S. The restaurateur’s use of non-GMO ingredients has proved to be a major driver of sales in 2013. The company intends to make all of its menu items organic by this year. Along with this, the company’s menu innovations, such as the introduction of Sofritas, will be major top-line drivers.
Further, we are also encouraged by Chipotle diversification strategies beyond its original Mexican food business. The company’s recent investment in a local pizza restaurant – Pizzeria Locale, along with its Shophouse Southeast Asian Kitchen Restaurant (serving Asian cuisine) are expected to be major drivers of traffic.
Going forward, we believe Chipotle's continued popularity, brand recognition and strong market position, menu launches, unit expansion and increased media exposure would improve traffic in future.
Other Stocks to Consider
Better-ranked stocks in the same sector include The Wendy's Company (WEN), Brinker International, Inc. (EAT) and Buffalo Wild Wings Inc. (BWLD). While Wendy’s sports a Zacks Rank #1 (Strong Buy), Brinker International and Buffalo Wild Wings have a Zacks Rank #2 (Buy).
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