We expect Chipotle Mexican Grill, Inc. (CMG) to beat expectations when it reports fourth-quarter and full year 2014 results on Feb 3, 2015 after the markets close. Last quarter, the company posted a positive earnings surprise of 7.51%.
Notably, the company beat earnings estimates in three of the trailing four quarters and currently has an average positive earnings surprise of 3.91%. Let's see what is in store this quarter.
Why a Likely Positive Surprise?
Our proven model shows that Chipotle Mexican Grill is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +3.18%. This is meaningful and a leading indicator of a likely positive earnings surprise.
Zacks Rank: Chipotle Mexican Grill has a Zacks Rank #2 (Buy). Note that stocks with Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Chipotle Mexican Grill’s Zacks Rank #2 and +3.18% ESP makes us confident of an earnings beat.
What's Driving the Better-Than-Expected Earnings?
Chipotle has been a consistent growth story in the fast casual restaurant sector with its stock price climbing 47% over the last one year. The company’s revenues and earnings have been increasing consistently year over year.
Chipotle has been witnessing a fairly stable traffic trend and posting strong comps over the past few quarters. In fact, the restaurant chain posted comps growth of 17% in the first nine months of 2014, a substantial increase from 4.3% recorded in the comparable period of 2013. The increase was driven by improved guest traffic and better operational efficiency. Given the trend, comps are expected to improve in the upcoming quarter as well.
Menu innovation has been the key to Chipotle’s traffic growth. The company’s move toward more organic, sustainably grown or raised, non-genetically modified organisms (GMO), and lower carbohydrate ingredients reflects its focus on meeting consumer preference. The company’s pricing power as well as proven quality products are among the key growth drivers.
However, the recent increase in food costs is likely to be a headwind, going forward. Also, menu price increase could hurt traffic, going forward.
Other Stocks to Consider
Chipotle Mexican Grill is not the only firm looking up this earnings season. We also anticipate earnings beat from three other companies in the restaurant industry:
El Pollo Loco Holdings, Inc. (LOCO) has an Earnings ESP of +8.33% and a Zacks Rank #2.
Noodles & Company (NDLS) has an Earnings ESP of +7.14% and a Zacks Rank #2.
Buffalo Wild Wings Inc. (BWLD) has an Earnings ESP of +1.85% and a Zacks Rank #2.
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