Chipotle Mexican Grill, Inc. (NYSE:CMG) has recently been upgraded from a neutral rating to an outperform rating by the analysts at Wedbush. As a result of the news Chipotle Mexican Grill opened up on Monday at a higher price of $341.91. Chipotle operates fresh Mexican food restaurants serving burritos, tacos, burrito bowls, and salads. Chipotle Mexican Grill operates 1,410 restaurants.
Growth Drivers
Food with integrity
As a strategy to involve people in its “Food with Integrity” concept, Chipotle has announced its plan to host cultivate festivals in San Francisco, Denver, and Chicago. The festivals are a one day event and include cooking demonstrations by celebrity chefs, live music, a special Chipotle festival menu, etc. emphasizing fresh food made with sustainable and organic ingredients. The whole idea behind these events is to educate people about how food can be raised responsibly.
Expansion Plans
Chipotle Mexican Grill, Inc. (NYSE:CMG) operates 1,410 restaurants out of which 1,399 are located throughout the United States, five are located in Canada, five are located in London and one in Paris. The company has grown substantially over the past five years. Chipotle expects to open between 165 and 180 additional restaurants in 2013. The future growth of Chipotle will be driven by its expansion plans.
Changing Consumer Preferences
In 2013, with the changing consumer preferences traditional fast food companies like McDonald’s and Yum! Brands, Inc. (NYSE:YUM) are expecting a tough year, while companies like Chipotle are expecting growth. The biggest reason is the unique positioning of Chipotle. Chipotle has positioned itself in the sweet spot between traditional fast food and waiter service. The ambiance of Chipotle’s fast-casual restaurants, and its emphasis on fresh ingredients has been successful in attracting and retaining people who do not mind paying about twice as much to eat at the Chipotle’s restaurants than at an eatery like McDonald’s or Taco Bell.
Strong Financials
The year 2012 proved to be a good year for Chipotle Mexican Grill, Inc. (NYSE:CMG) as it posted positive financials. In 2012, revenue increased to $2.73 billion with an increase of 20% over the previous year 2011. Net income for Chipotle increased to $278 million, marking an increase of 29% over the previous year. The restaurant sales increased 7.1% in 2012 and the diluted earnings per share was $8.75, an increase of 29.4% over the previous year. It opened 183 new restaurants in 2012. Restaurant level operating margin increased 110 basis points over 2011 to 27.1%.
Chipotle is expected to announce its first quarter 2013 results on 18 April, 2013 and the results are expected to be positive.
Chipotle’s stock analysis
Chipotle Mexican Grill, Inc. (NYSE:CMG) is enjoying a bullish trend since touching a low of $236 in October 2012. Currently the stock is trading at the level of $344. The positive outlook is due to the great financial performance shown by Chipotle in the previous quarter. Chipotle enjoys a market capital of $10.73 billion. The quarterly revenue growth of 0.17 year on year for Chipotle is better than the industry’s growth of 0.09. The operating margin and gross margin for Chipotle exceeds the industry’s margin.
Competitors
The competitors of Chipotle Mexican Grill, Inc. (NYSE:CMG) include: Jack in the Box Inc. (NASDAQ:JACK) and Darden Restaurants, Inc. (NYSE:DRI).
Jack in the Box Inc. (NASDAQ:JACK), with its subsidiary Qdoba Restaurant, operates restaurants with the name of Qdoba Mexican Grill in the United States. Qdoba operates with about 600 fast casual restaurants throughout the United States. The company trades at $35, with a market cap of about $1.5 billion.
Comparatively larger, Florida based Darden Restaurants, Inc. (NYSE:DRI) trades at $50 and has a market capitalization of about $7 billion. It operates full service restaurants in the United States and Canada. It operates restaurants under different brand names like Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52, Eddie V’s Prime Seafood, and Wildfish Seafood Grille. In 2012, it owned and operated approximately 2,000 restaurants.
Comparison with Competitors
New Restaurants opened: During the year 2012, Chipotle opened 180 new Mexican grill restaurants in the US whereas Qdoba (Jack in the Box) opened 78 new restaurants (46 Company owned and 32 franchise owned) and Taco Bell (Yum Brands) opened around 25 units in the United States.
Net Income increase: For Yum! Brands, Inc. (NYSE:YUM), net income increased 21% from $1.319 billion in 2011 to $1.597 billion in 2012. Chipotle’s net income increased 19.7% in 2012 whereas for Jack in the Box Inc. (NASDAQ:JACK) there is an increase of 13.6% in net income in 2012.
Margins:
| Net Profit Margin in 2012 | Operating Margin in 2012 | |
| Chipotle | 10.18% | 16.19% |
| Jack in the Box | 4.08% | 7.28% |
| Yum Brands | 11.79% | 16.83% |
As seen from the table, Chipotle has better margins than Jack in the Box and its margins are comparable with Yum! Brands, Inc. (NYSE:YUM).
Conclusion
Chipotle Mexican Grill, Inc. (NYSE:CMG) is the market leader in the Mexican fast casual restaurant industry with over $2 billion in sales which accounts for nearly 15% of the industry. Chipotle is one of the fastest growing public restaurants with an average growth of 14% over the past five years. Chipotle’s future growth outlook is positive as it is expanding operations by opening around 165 to 180 restaurants in 2013. Chipotle is also planning to roll out a new catering business in 2013. Chipotle’s ability to produce better food and its efficient operations has led to its growth. Chipotle is a buy for the long term. Recently, UBS has also raised the rating of Chipotle Mexican Grill to buy from neutral.
Shas Dey has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill and Darden Restaurants, Inc. (NYSE:DRI).
