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Chipotle (CMG) Shares Up 51% YTD: More Room for Upside?

Chipotle Mexican Grill, Inc. CMG is poised to benefit from robust comps growth, digital initiatives and Chipotlane add-ons. Also, solid recovery of in-restaurant sales and the positive customer reception to new menu items has been an important factor for sales improvement over the last few quarters.

So far this year, shares of Chipotle have gained 51% compared with the industry’s 13.8% growth. The price performance was backed by a solid earnings surprise history. Chipotle’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters. Earnings estimates for 2023 and 2024 have moved up 5.7% and 4%, respectively, in the past 60 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #1 (Strong Buy). This indicates robust fundamentals and an expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.

Major Growth Drivers

Chipotle continues to impress investors with robust comparable sales growth. During the first quarter, comparable restaurant sales increased 10.9% year over year, following growth of 5.6% (in fourth-quarter 2022), 7.6% (in third-quarter 2022), 10.1% (in second-quarter 2022) and 9% (in first-quarter 2022). The upside can be attributed to rise in menu prices and higher transactions. This and consistent strength in digital sales, solid recovery of in-restaurant sales and the positive customer reception to new menu items contributed to the company’s results. For second-quarter and full-year 2023, the company expects comps growth in the mid to high-single-digit range.

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Chipotle is leaving no stone unturned to make digital ordering more appealing to customers and increasingly efficient for restaurants. The company redesigned and simplified the online ordering site, enabled online payment for catering and collaborated with several well-known third-party providers for delivery. In order to boost convenience in the digital ordering platform, the company initiated features such as unlimited customization, contactless delivery and group ordering. Another initiative that has been benefiting the company is the rewards program.

The company is also focused on robotics-based autonomous vehicles for delivery, which is likely to enhance the customer experience in the upcoming periods. Digital sales contributed 39% to sales during first-quarter 2023. The company witnessed a rise in order-ahead transactions, courtesy of enhanced guest access and convenience.

Chipotle continues to focus on the addition of Chipotlanes to drive growth.  During the first quarter of 2023, Chipotle opened 41 new restaurants, with 34 locations, including a Chipotlane. The addition enhanced customer access and convenience and bolstered new store restaurant sales, margins and returns Backed by impressive unit economics and the success of small-town locations, it anticipates opening between 255 and 285 restaurants in 2023, with more than 80% of the restaurants having Chipotlanes in them.

Chipotle is consistently focusing on menu innovation to drive growth. During the first quarter of 2023, the company announced the addition of Fajitas to its Quesadilla platform (as a permanent menu item) and reported a solid business with respect to the same. The addition was supported by the limited complexity in its restaurant operations. The company announced the global roll out of Chicken Al Pastor in the United States, Canada and Europe and reported solid customer feedback. The introduction of new items, solid marketing activities that include a combination of brand-building efforts and transaction-driving promotions and advertising are likely to lead to a steady inflow of new customers.

Other Solid Restaurant Bets

Some other top-ranked stocks in the same space are are McDonald's Corporation MCD, Shake Shack Inc. SHAK and Wingstop Inc. WING.

McDonald's currently sports a Zacks Rank #1. MCD has a trailing four-quarter earnings surprise of 6.9%, on average. Shares of the company have gained 25.7% in the past year.

The Zacks Consensus Estimate for MCD’ 2023 sales and EPS suggests growth of 7.7% and 9.2%, respectively, from the year-ago period’s reported levels.

Shake Shack currently sports a Zacks Rank #1. SHAK has a trailing four-quarter earnings surprise of 58.6%, on average. Shares of the company have gained 58.9% in the past year.

The Zacks Consensus Estimate for SHAK’s 2023 sales and EPS suggests growth of 21.3% and 138.7%, respectively, from the year-ago period’s reported levels.

Wingstop currently sports a Zacks Rank #1. WING has a long-term earnings growth rate of 20%. Shares of WING have gained 179% in the past year.

The Zacks Consensus Estimate for Wingstop’s 2023 sales and earnings per share (EPS) suggests growth of 18.6% and 13%, respectively, from the year-ago period’s reported levels.

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McDonald's Corporation (MCD) : Free Stock Analysis Report

Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report

Shake Shack, Inc. (SHAK) : Free Stock Analysis Report

Wingstop Inc. (WING) : Free Stock Analysis Report

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