Q3 Preview: Analysts Concerned with Rising Prices at Chipotle (CMG)

Shares of Chipotle Mexican Grill Inc. (NYSE: CMG) are trading roughly flat Thursday as the company is expected to report its third-quarter results following the closing bell.

The company has a conference call scheduled for 4:30 pm ET. The conference call contact number is 888-500-6974.

The consensus for Chipotle’s third quarter is $584.14 million in sales and $1.85 for earnings per share. Analyst’s current price targets on shares of CMG average $337 and range from $237 to $400. Analysts are mostly neutral on the stock into the report: data from Bloomberg shows 10 firms with a Buy, 16 at Hold, and three have a Sell rating on the shares.

Analyst Commentary:

• Analysts at Wedbush are bullish on shares of CMG with an Outperform rating and $400 price target. The firm sees Chipotle reporting sales of $587 million with earnings of $1.86 per shares. The bullish thesis is based on high single to low double digit same store sales growth. Hurricane Irene is estimated to have impacted same-store sales by 10-20 basis points as the area includes five to 10 percent of its total stores.
  
  The company completed its four and half percent price hikes in August and the implications from it will be shown in this quarter’s results. The price increases are expected to offset any transaction deceleration.
  
  
• DA Davidson has a Buy rating and $400 price target on the company. The firm is bullish, but forecasts Chipotle will report third-quarter results below expectations. Bart Glenn, an analyst at the firm, estimates earnings of $1.75 per share on $578.5 million in sales. Unlike Wedbush, DA Davidson sees margins retracting by 120 basis points due to higher food costs.
  
  “We believe consensus expectations for 27.2% store level margins are too aggressive but could be offset by revenue upside,” reports Glenn. The firm estimates same-store sales to increase 9 percent for the quarter, while noting its estimate may prove to be conservative.
  
  Glenn also commented, “We think investors will focus more on revenue trends than Q3 profits given that temporary margin pressure is expected to subside by the end of the year. Although we are below the Street for 2011 estimates, we believe there is healthy upside to 2012 and 2013 consensus earnings expectations.”

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