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Chipolte Mexican Grill Sign

Chipotle Mexican Grill Inc, one of the leading fast-casual restaurant chains, reported that its total revenue fell for the first time in at least 14 quarters by 4.8% to $1.36 billion in the second quarter; however, its digital sales tripled amid the COVID-19 pandemic.

The Mexican fast-casual chain, which features bowls and burritos said its digital sales grew 216.3% year-over-year to $829.3 million, the company’s highest-ever quarterly level, and represented 60.7% of sales. Overall, comparable restaurants sales were down 9.8% but improved in July, growing 6.4%.

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Adjusted diluted earnings per share excluding these charges was $0.40, a 90.0% decrease from $3.99, the international chain which has thousands of stores said.

“Our investment in digital over the past few years has provided our customers with convenient access to Chipotle how and where they want it. We’ll continue to invest in elevating the digital experience, including opening more Chipotlanes, while innovating with new culinary offerings such as cauliflower rice, organic beverages and quesadillas,” said Brian Niccol, Chairman and CEO, Chipotle.

“I’m confident we will finish 2020 with good momentum and be well-positioned for the long run.”

Given on-going uncertainty surrounding the future impact of COVID-19 on the broader U.S. economy and any specific impact on Chipotle, the company did not provide fiscal 2020 guidance related to comparable restaurant sales growth, new restaurant openings, and effective full-year tax rate.

Chipotle Mexican Grill shares closed about 2% higher $1,185.27 on Wednesday but are 40% higher so far this year.

“Led by digital, recovery continues to unfold in line with demanding expectations, though perhaps not more. Top-line, LT margin and unit potential all intact; actions to be undertaken in the 3Q to mitigate delivery costs without disrupting sales will be next important data point,” said John Glass equity analyst at Morgan Stanley.

Chipotle Mexican Grill stock forecast

Twenty-two analysts forecast the average price in 12 months at $1,154.94 with a high forecast of $1,450.00 and a low forecast of $688.00. The average price target represents a -2.56% decrease from the last price of $1,185.27. From those 22, 14 analysts rated ‘Buy’, eight rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price under a bull scenario is $1,250 and $379 under the worst-case scenario. Chipotle Mexican Grill had its price objective upped by stock analysts at RBC to $1,250 from $1,125. Several other equity research analysts have also updated their Chipotle’s stock outlook. SunTrust Banks lifted their price target to $1,336 from $946 and gave the stock a “buy” rating. UBS Group upped their target price on Chipotle Mexican Grill to $1,200 from $850.00.

We second RBC and SunTrust Banks on Chipotle’s stock outlook. We also think it is good to buy at the current level and target $1250 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

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Analyst view

“Better sales, mainly off-premise, will be a key driver of margins, but we see other underappreciated opportunities, including labour efficiencies from the ‘second make line’, and supply chain improvements. New management team actively focused on improving top-line through a variety of initiatives (digital, delivery, throughput, new products, marketing, etc.); we think there is potential runway for many of these to support comps in a tougher environment,” said John Glass equity analyst at Morgan Stanley.

“Brand and cultural refresh, further unit growth runway, and revamped marketing are also key parts of the story. Current challenges weighed against high expectations reflected in current stock price, in our view, drives our Equal-weight rating.”

Upside and Downside risks

Economic recovery is quicker than anticipated. Sales driving initiatives could drive better than expected comps/share gains. Store margin improvement above expectations, Morgan Stanley highlighted as upside risks to Chipotle.

SSS levels take longer to recover in a recessionary environment. Valuation demanding; a less defensive consumer discretionary stock. Food safety issues recur (even contained events could be overemphasized by the media), Morgan Stanley highlighted as downside risks.

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