- Chipotle Mexican Grill hit a top at the end of 2023, but new highs are in the forecast.
- The year's first five analysts' revisions have this stock trading at an all-time high.
- The bar for Q4 results is set low and provides a potential catalyst for higher share prices.
Chipotle Mexican Grill (NYSE:CMG) shares entered correction along with the broader market at the start of 2024, but the pullback will not likely get far. The company continues to execute at the highest level, driven by the foresight and lean into digital channels inspired by CEO Brian Niccol. While price action is under pressure and may move lower before it moves higher, the analysts' activity suggests this best-in-breed restaurant stock will move higher.
Marketbeat is tracking five revisions to the analysts' research in the year's first week. All five are bullish and increased their price target by an average of $391. That’s worth 17% of the current price action and puts the consensus of 2024 targets at $2535. That’s 12% above the consensus estimate and nearly 15% above the current price action, and the high end of the range suggests another 10% upside is possible. The consensus of 25 analysts is Moderate Buy.
Notably, the new high-price target was set by Stephens on January 2nd. They rated the stock at Overweight and increased their target by 20%. This reflects a 7.5% increase to the Q4 comp forecast backed up by channel checks. Analyst Joshua Long’s channel checks suggest comp traffic was solid through November 2023, with traffic picking up in December. Among the drivers of strength include the carne asada promotion, digital traffic and store-level optimization/efficiency.
Chipotle analysts set a low bar for Q4 results
Analysts expect double-digit top-line growth and margin expansion in Q4 but have set the bar low. More than half the analysts have lowered their forecast over the last two months, contrary to trends and the latest from Stephens. As it is, the Marketbeat.com consensus expects revenue growth to accelerate to 13% and drive a 16% increase in GAAP and adjusted earnings. The critical details will include results and guidance for the coming year.
The company has targeted about 300 new store openings in 2024. This will be compounded by remodels and repositioning that will also increase the number of Chipotlanes, a key driver of company performance. The company opened about 250 stores in 2023, about 8% store count growth, and will accelerate that to roughly 10% in 2024, so strength should be expected. Analysts target 13% top-line growth in 2024, a low figure given the sustained mid-to-high single-digit comp store and store count growth seen in 2023 and expected for 2024.
Insider buys Chipotle in December; Institutions are holding
Insider Gregg Engles bought CMG stock in December. He is not a significant holder with only 1,616 shares, but his purchase is telling. The transaction is worth $2 million, no small amount, and doubles his position. Mr. Engels is a director of the company. Other insiders, including CEO Brian Niccol, have sold shares but have not raised a red flag. Their sales are small, periodic and likely associated with share-based compensation.
Institutional holdings are more impressive. The institutions own about 92% of the stock, including a near-10% position by the Vanguard Group. Their activity has been mixed over the last 12 months but bullish on balance, suggesting rotation within a rally and not an end to it.
The technical outlook: CMG stock is at a top
Chipotle Mexican Grill hit a top at the end of 2023 and is in corrective mode now. The question is how deep the correction will get before rebounding, and it may be shallow. The first target for significant support is near $2,175, less than 2% below the current action. Assuming the market bounces from that level, it could set a new high in the first half or quarter of the year. If not, CMG stock could fall back to the $1,950 level and not rebound until mid-year or later. In that scenario, there is a chance that CMG will become range-bound, with the $2,300 level acting as resistance.