Chipotle Mexican Grill, Inc. (NYSE: CMG) investors got more good news on Thursday when the company reported its third consecutive quarter of positive earnings numbers. Chipotle’s growth finally seems to be back on track, but some analysts say CMG stock is simply too expensive to own at its current price.
Chipotle reported second-quarter adjusted earnings per share of $2.87 on revenue of $1.3 billion. Both numbers topped consensus analyst estimates of $2.80 and $1.26 billion, respectively. Revenue was up 8.3 percent from a year ago.
[See: 8 Ways to Satisfy a Craving for Restaurant Stocks.]
Chipotle also reported same-store sales growth of 3.3 percent, above Wall Street expectations of 2.7 percent. Restaurant-level operating margin was 19.7 percent compared to 19.5 percent last quarter.
“I’m pleased to report a solid second quarter with sales and restaurant margins ahead of expectations,” new CEO Brian Niccol says in a statement. “While we made progress during the quarter with particular strength in digital sales, I firmly believe we can accelerate that progress by executing our reorganization and our strategy to win today and cultivate tomorrow.”
Investors have high hopes for Niccol, who left his CEO position at Taco Bell to join Chipotle in February. CMG stock is up more than 87 percent since the company named Niccol its new CEO. Last month, Niccol unveiled plans to invest $135 million in launching a new ad campaign, improving online and mobile ordering and closing underperforming restaurants.
Looking ahead, Chipotle raised its guidance for full-year 2018 same-store sales growth from “low single digits” to “low to mid-single digits.” Chipotle also says new 2018 restaurant openings will likely be at the lower end of its previous guidance of between 130 and 150 locations.
CMG stock initially traded higher by more than 6 percent following the report. Bank of America analyst Gregory Francfort says there’s reason for optimism that Niccol’s initiatives will get Chipotle back on the right track.
“Chipotle is one of the few high-growth restaurant companies and has numerous appealing attributes that support continued unit growth,” Francfort says.
However, with a forward price-earnings ratio of 38.3, he says Chipotle stock is pricing in too much optimism.
“The company continues to trade at an expensive level on aggressive street earnings consensus, and therefore we see risk to the stock going forward,” Francfort says.
[See: 7 of the Best Stocks to Buy for 2018.]
Bank of America has an “underperform” rating and $340 price target for CMG stock.
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Chipotle Mexican Grill, Inc. (CMG) Stock Rallies on Strong Earnings originally appeared on usnews.com
