Pricing energy questions loom giant for Chipotle earnings (NYSE:CMG)

After Tuesday’s market shut, well-liked restaurant chain Chipotle Mexican Grill (NYSE:CMG) is because of publish its third quarter earnings replace. Questions on the inflationary impacts and the power of the chain to maintain demand as customers reduce on spending will probably be entrance and heart.

Analysts anticipate the California-based burrito-focused chain to publish $9.19 in earnings per share and $2.23B in income. The corporate has overwhelmed EPS estimates in 7 of the previous 8 quarters, besting income expectations in 6 of these stories.

Chipotle (CMG) shares have considerably outperformed the market in 2022, marking solely about an 8% decline in distinction to an over 20% drop within the S&P. When in comparison with its sector through merchandise just like the AdvisorShares Restaurant ETF (EATZ), the inventory once more has notched a double-digit proportion of outperformance.

Regardless of the discretionary nature of restaurant purchases, Chipotle (CMG) is seen as a defensive choose by many analysts, maybe lending to that outperformance. Oppenheimer was one such agency, highlighting the pricing energy of the chain even amidst an unsure macroeconomic atmosphere. For instance, the chain’s working margin rose 230 foundation factors within the second quarter regardless of rising enter prices.

“This [bullish] thesis is additional enabled by accelerating unit progress and a CMG meals commodity setup that seems to be enhancing, based mostly on our up to date work,” Oppenheimer analysts stated in a be aware to shoppers shortly earlier than the report. “Close to time period, we forecast an EPS beat in 3Q22 (10/25 print) and imagine the purchase facet’s nervousness round 4Q22 traits presents an actionable alternative.”

Cowen’s evaluation additionally indicated that demand stays sturdy even because the restaurant continues to hike costs in 2022. The agency expects identical retailer gross sales progress of 6% in Q3, above the 5.5% consensus and likewise above-consensus identical retailer gross sales in 2023. Each Cowen and Oppenheimer additionally indicated that steerage may very well be raised on Tuesday, cementing a “Purchase” ranking on the inventory from each companies.

Visitors metrics additionally counsel sustained reputation for the chain. Based on knowledge analytics agency Placer.ai, month-to-month visits have grown yr over yr all through 2022, contrasting shapely with fast-casual friends. Placer’s evaluation mirrored 8.1%, 11.7% and 5.5% foot visitors will increase in July, August and September whereas general trade visitors declined from the prior yr.

Indicative of the rising bullishness amongst Wall Avenue analysts heading into the quarter, EPS estimates had been revised upward 30 instances prior to now 90 days. Based on SeekingAlpha surveys, the consensus ranking stays a “Purchase” with a consensus worth goal of $1787.97.

In contrast, SeekingAlpha contributor Shri Upadhyaya sees a possibility for bears as bulls develop overconfident.

“The inventory is overvalued and even after you think about its future progress, it trades at virtually 47 instances its earnings and 5 instances its gross sales,” he wrote on October 20. “When you think about this in opposition to its sector median (Shopper Cyclicals) of P/E at 12 and P/S at 0.8, the differential is simply too giant to be ignored.”

Dig into the valuation metrics for the inventory.