Today’s Market Wrap Up and Look Ahead to Tomorrow

Today’s stock market activity was subdued ahead of this week’s inflation data. Stocks didn’t move the meter with the three major indices finishing the day mixed.

The S&P 500 ended fractionally higher after it failed to regain enough traction to set another all-time high like it did in May. The Nasdaq also eked out some gains while the Dow Jones Industrial Average finished the day slightly in the red despite modest gains in Boeing stock as orders bounce back.

The economy is roaring back, as evidenced by job openings that have now surpassed pre-pandemic levels. The number of available jobs in the U.S. rose to 9.3 million in April, representing the strongest showing since the turn of the century and compared to 8.3 million in the prior month, as per the Labor Department’s latest data. There are currently about 9.8 million Americans looking for work.

Market performance is surprisingly hinting at no signs of inflation rearing its head ahead of Thursday’s closely watched CPI report for May. Tech and growth-oriented stocks alike advanced while Treasury yields fell, suggesting that inflation is in check and the Fed will find no reason to rush any interest rate hikes. Meanwhile, oil prices are finding a reason to rise.

Meme Stock Mania

Meme stocks have been steering trading and today didn’t disappoint.

  • Healthcare startup Clover Health came close to doubling, gaining 85% on the day on trading volume of 725 million. The average volume on Clover stock is 24 million.
  • Hamburger chain Wendy’s also muscled its way into the meme stock dynamic, gaining 25% on the day. Short interest in WEN is arguably low, however, so time will tell if it the WallStreetBets crowd will stick around in this name.
  • Fellow restaurant stock (though it’s not a meme stock) Chipotle saw green in response to a 4% hike in menu prices to offset higher wages the company is paying its workers.

Look Ahead

GameStop, the meme stock that started it all, reports Q1 earnings on Wednesday after the market closes. The stock’s 1,300%-plus price surge YTD is sure to be a highlight. Wall Street is expecting the gaming company to report a near 15% jump in sales YoY to USD 1.17 billion. They are also expecting the company to narrow its loss from USD 98.8 million to USD 67 million or from a loss of USD 1.61 per share to a loss of USD 0.71 per share.

All eyes are on the commodities market after WTI oil futures ended the day above USD 70 per barrel, a feat it hasn’t achieved in more than two years. Brent crude futures closed above USD 72. The momentum suggests that oil has managed to steer clear of market pressure hitting its commodity peers.

 

 

Chipotle Raises Average Hourly Wage, Looks to Hire 20,000 Workers

Several U.S. chains, including Taco Bell and McDonald’s, are adding benefits or running hiring events to lure applicants as people, flushed with stimulus checks, are wary of returning to work.

U.S. job growth unexpectedly slowed in April, even as the leisure and hospitality industry added 331,000 jobs. Hiring at restaurants and bars accounted for more than half of that.

Raising the minimum wage to $15 an hour has also been on U.S. President Joe Biden’s agenda. He had even tried to plug it into the COVID-19 relief bill signed in March, but Congress stripped it from the package.

Late last month his administration took the first step, signing an order to raise wages to $5 for federal workers. (https://reut.rs/3o5odW9)

Chipotle said it would offer a $200 employee referral bonus for crew members and $750 for apprentices or general managers.

The starting wage ranges from $11-$18 and the latest average hourly wage increase will be $2, the company said.

The chain saw a surge in sales since the pandemic as consumers looking for diet-friendly options and new menu items like the carne asada or cauliflower rice ordered in or picked up their meals in stores.

(Reporting by Nivedita Balu in Bengaluru)

Chipotle Grill Trades Flat Despite Delivering Spicy Earnings

Chipotle Mexican Grill, Inc. (CMG) shares exchanged hands relatively unchanged in Wednesday’s extended-hours session, despite the Mexican food chain reporting blowout earnings.

The company posted a first-quarter (Q1) adjusted profit of $5.36 per share, with the figure topping Wall Street’s expectation of $4.89 a share and growing 74% from the year-ago quarter. Meanwhile, revenue of $1.74 billion during the period met analysts’ forecasts.

Comparable store sales boosted the top line, climbing 17.2% from a year earlier and 21% from pre-pandemic levels in 2019. Online orders, which account for around 50% of total sales, more than doubled during the quarter. Management credited a range of new menu items and government stimulus checks for the better-than-expected result.

Despite the company choosing not to provide full-year earnings guidance, Chairman and CEO Brian Niccol remained upbeat about the months ahead. “As vaccines roll out and we get closer to moving past this pandemic, I believe Chipotle is well-positioned for growth. I’m excited about our future as we remain focused on innovating in culinary, leading in food with integrity, and providing convenient access inside our restaurants and through our expanding digital ecosystem,” he told investors, per PR Newswire.

Through Wednesday’s close, Chipotle stock has a market value exceeding $40 billion and trades 92% high over the past 12 months. Year to date (YTD), the shares have added 8.72%, slightly trailing the S&P 500’s 11% gain over the same period. Valuation-wise, the stock trades 20% above its five-year average projected earnings multiple of 55.36 times.

Wall Street View

Last month, Cowen analyst Andrew Charles reiterated his ‘Outperform’ rating and $1900 price target on Chipotle shares. Charles pointed to the company’s underappreciated growth aspects, potential for broader loyalty adoption, and digital initiatives as supporting factors.

Coverage remains mostly bullish elsewhere on Wall Street. The stock receives 17 ‘Buy’ ratings, 3 ‘Overweight’ ratings, and 13 ‘Hold’ ratings. Just one analyst has placed an ‘Underweight’ recommendation on the shares. The stock currently offers a 14% discount to analysts’ 12-month median price target of $1,720.

Technical Outlook and Trading Tactics

Since bottoming out around $450 a share at the height of last year’s pandemic sell-off, Chipotle shares have trended consistently higher. More recently, the stock has formed two swing highs at the $1,560 level, increasing the possibility of a double top. Furthermore, the second peak made a slightly higher high while the RSI indicator made a relatively shallower high to mark a bearish divergence between price and the indicator.

Active traders who open a short position should target a move down to the $1,365 area where the shares find a confluence of support from a horizontal trendline and the rising 200-day simple moving average (SMA). Protect trading capital by placing a stop-loss order just above the high of the second peak at $1,579.52.

For a look at today’s earnings schedule, check out our earnings calendar.

Chipotle Mexican Grill Could Hit New All-Time High on Strong Q1 Earnings

US restaurant chain Chipotle Mexican Grill is expected to report its first-quarter earnings of $4.79 per share, which represents year-over-year growth of over 55% from $3.08 per share seen in the same quarter a year ago.

Chipotle Mexican Grill to announce its first-quarter 2021 results on Wednesday, April 21, 2021. The California-based company would post revenue growth of over 20% to around $1.7 billion. According to ZACKS Research, equity analysts on average forecasts full-year sales of $7.24 billion for 2021, with estimates ranging from $7.11 billion to $7.51 billion. For 2022, analysts expect sales to reach $8.12 billion, with estimates ranging from $7.89 billion to $8.40 billion.

Chipotle Mexican Grill’s shares, which surged more than 65% in 2020, rose over 10% so far this year.

Analyst Comments

“Our 1Q comp forecast of 16% (unchanged here) compares to Street 16.8% and guidance of mid-to-high teens with January closer to 11%, weather impacting February and an easier lap in March. Pricing increases are another driver; cauliflower rice was launched early in the quarter, and quesadillas were launched nationally in early March. We model store margins of 20.9% vs Street 21.1% and EPS of $4.84 vs Street $4.80, unchanged here,” noted John Glass, equity analyst at Morgan Stanley.

“Annual comments still not likely to be provided aside from development (already provided at ~200), comp estimates were provided last quarter however for the current quarter. 2Q will lap the most material COVID-19 disruption and we forecast close to +30% SSS accordingly, which obscures some of the impacts of discrete items like new products or stimulus.”

Chipotle Mexican Grill Stock Price Forecast

Twenty-three analysts who offered stock ratings for Chipotle Mexican Grill in the last three months forecast the average price in 12 months of $1,649.95 with a high forecast of $2,000.00 and a low forecast of $1,165.00.

The average price target represents a 7.74% increase from the last price of $1,531.42. Of those 23 analysts, 14 rated “Buy”, nine rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $1,476 with a high of $1,895 under a bull scenario and $844 under the worst-case scenario. The firm gave an “Equal-weight” rating on the restaurant’s stock.

“Better sales, mainly off-premise, will be a key driver of margins, but we see other underappreciated opportunities, including labor efficiencies from the ‘second make line’, and supply chain improvements. The new management team actively focused on improving the top-line through a variety of initiatives (digital, delivery, throughput, new products, marketing, etc.); we think there is a potential runway for many of these to support comps in a tougher environment,” Morgan Stanley’s Glass added.

“Brand and cultural refresh, further unit growth runway, and revamped marketing are also key parts of the story. Current challenges weighed against high expectations reflected in current stock price, in our view, drives our Equal-weight rating.”

Several other analysts have also updated their stock outlook. Chipotle Mexican Grill had its price objective raised by Truist Securities to $1,750 from $1,700. They currently have a buy rating on the restaurant operator’s stock. BTIG Research lifted their price objective to $1,600 from $1,450 and gave the company a buy rating.

Moreover, KeyCorp lifted their price objective to $1,625 from $1,475 and gave the company an overweight rating. Loop Capital lifted their price objective to $1,800 from $1,600 and gave the company a buy rating. Wells Fargo & Company lifted their price objective to $1,775 from $1,677 and gave the company an overweight rating.

Check out FX Empire’s earnings calendar

Three Top Restaurant Plays for 2021

National and international fast food chains have entered 2021 in a commanding position to recoup the balance of losses posted in 2020. More importantly, they’re likely to grow market share well above prior highs because tens of thousands of smaller operators have been forced out of business as a result of lockdowns and social distancing. It could take years for a new wave of restaurateurs to obtain financing, given the credit damage caused by bankruptcy filings.

Three top restaurant plays for 2021 offer few unexpected opportunities because they’re all household names that have survived and prospered during the pandemic. These big cap players have also established new delivery channels and expanded drive-through facilities in the last year, putting them in perfect positions to pick up the slack left by the departure of your favorite rib joints and greasy spoons.

McDonald’s

Dow component McDonald’s Corp. (MCD) entered a steep correction in the fourth quarter of 2019 and fell to a three-year low in March 2020. The stock completed a round trip into the prior high and broke out in October but the rally failed, yielding mixed action into January. Price action settled on the 200-day moving average in December and has held that level, raising odds it will soon enter a breakout run, possibly fueled by declining infection rates in the United States.

Chipotle Mexican Grill

 Chipotle Mexican Grill (CMG) isn’t well-known in parts of the world but it’s now the second highest-capitalized restaurant chain, behind Mickey D. The burrito purveyor has posted better-than-expected numbers throughout the pandemic and now offers delivery, after resisting that revenue source for years. The stock broke out to an all-time high in December, after a three-month consolidation, and could post outstanding returns for investors in 2021.

Yum China

 Yum China Holdings Inc. (YUMC), Shanghai-based purveyor of KFC, Taco Bell, and Pizza Hut, was spun off from Yum! Brands Inc. (YUM) in November 2016. It’s now a $22 billion operation that’s outperforming the parent, breaking out to a new high in June when China emerged from the COVID-19 pandemic. The stock has continued to post new highs since that time, culminating in Jan. 11’s all-time high at 61.18.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Chipotle Mexican Grill At Resistance After Big Breakout

Chipotle Mexican Grill Inc. (CMG) met Q2 2020 earnings and revenue estimates in July, prompting a sell-the-news reaction that held short-term support. Revenue fell 4.8% year-over-year, with comparative sales slumping badly in May and June but rising 2% in June. The popular fast food chain noted a healthy sales escalation throughout July, with a 6.4% increase in comparative restaurant sales.

Chipotle Posts Impressive Return Since 2018

Chipotle Mexican Grill operates 2,580 Mexican-themed fast food restaurants in the United States, along with 39 international locations. The stock was a top NYSE and restaurant sector performer until 2015 when it got blamed for a major food poisoning outbreak that uncovered questionable sanitizing procedures. The downtrend finally bottomed out at a 6-year low in 2018, giving way to a strong recovery that’s gained more than 500% in the last 2½ years.

Bernstein raised their target from $1,300 to $1,600 on Tuesday, with analyst Sara Senatore noting that, “Chipotle Mexican Grill appears to have taken the first small steps toward the margin part of the recovery path with delivery fees; we expect modest pricing could also play a role as could a slacker labor market. Even relatively modest fees support margins. Mobile order ahead has also tripled; reduced delivery support will likely translate into ordering channel shift, not lost traffic.”

Wall Street And Technical Outlook

Wall Street consensus rates the stock as a ‘Moderate Buy’, with an even split of 15 ‘Buy’ and 15 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions and move to the sidelines. Price targets currently range from a low of $751 to a street-high $1,600 while Chipotle Mexican Grill is now trading $60 above the median $1,207 target. This placement could put a lid on returns, especially with the astronomical 140.46 price-to-earnings ratio (P/E).

The stock broke out above the 2015 high near 750 in August 2019 and failed the breakout in the first quarter’s pandemic swoon. It bounced back to the rally high in May and broke out once again, entering a rising channel that’s contained price action into August. Fortunately for bulls, this pattern significantly lowers risk because stops can be placed relatively close to price action, allowing an easy exit during the first stages of an intermediate correction.

Chipotle Mexican Grill Q2 Revenue Falls 4.8% But Digital Sales Triple; Target Price $1250

Chipotle Mexican Grill Inc, one of the leading fast-casual restaurant chains, reported that its total revenue fell for the first time in at least 14 quarters by 4.8% to $1.36 billion in the second quarter; however, its digital sales tripled amid the COVID-19 pandemic.

The Mexican fast-casual chain, which features bowls and burritos said its digital sales grew 216.3% year-over-year to $829.3 million, the company’s highest-ever quarterly level, and represented 60.7% of sales. Overall, comparable restaurants sales were down 9.8% but improved in July, growing 6.4%.

Adjusted diluted earnings per share excluding these charges was $0.40, a 90.0% decrease from $3.99, the international chain which has thousands of stores said.

“Our investment in digital over the past few years has provided our customers with convenient access to Chipotle how and where they want it. We’ll continue to invest in elevating the digital experience, including opening more Chipotlanes, while innovating with new culinary offerings such as cauliflower rice, organic beverages and quesadillas,” said Brian Niccol, Chairman and CEO, Chipotle.

“I’m confident we will finish 2020 with good momentum and be well-positioned for the long run.”

Given on-going uncertainty surrounding the future impact of COVID-19 on the broader U.S. economy and any specific impact on Chipotle, the company did not provide fiscal 2020 guidance related to comparable restaurant sales growth, new restaurant openings, and effective full-year tax rate.

Chipotle Mexican Grill shares closed about 2% higher $1,185.27 on Wednesday but are 40% higher so far this year.

“Led by digital, recovery continues to unfold in line with demanding expectations, though perhaps not more. Top-line, LT margin and unit potential all intact; actions to be undertaken in the 3Q to mitigate delivery costs without disrupting sales will be next important data point,” said John Glass equity analyst at Morgan Stanley.

Chipotle Mexican Grill stock forecast

Twenty-two analysts forecast the average price in 12 months at $1,154.94 with a high forecast of $1,450.00 and a low forecast of $688.00. The average price target represents a -2.56% decrease from the last price of $1,185.27. From those 22, 14 analysts rated ‘Buy’, eight rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price under a bull scenario is $1,250 and $379 under the worst-case scenario. Chipotle Mexican Grill had its price objective upped by stock analysts at RBC to $1,250 from $1,125. Several other equity research analysts have also updated their Chipotle’s stock outlook. SunTrust Banks lifted their price target to $1,336 from $946 and gave the stock a “buy” rating. UBS Group upped their target price on Chipotle Mexican Grill to $1,200 from $850.00.

We second RBC and SunTrust Banks on Chipotle’s stock outlook. We also think it is good to buy at the current level and target $1250 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“Better sales, mainly off-premise, will be a key driver of margins, but we see other underappreciated opportunities, including labour efficiencies from the ‘second make line’, and supply chain improvements. New management team actively focused on improving top-line through a variety of initiatives (digital, delivery, throughput, new products, marketing, etc.); we think there is potential runway for many of these to support comps in a tougher environment,” said John Glass equity analyst at Morgan Stanley.

“Brand and cultural refresh, further unit growth runway, and revamped marketing are also key parts of the story. Current challenges weighed against high expectations reflected in current stock price, in our view, drives our Equal-weight rating.”

Upside and Downside risks

Economic recovery is quicker than anticipated. Sales driving initiatives could drive better than expected comps/share gains. Store margin improvement above expectations, Morgan Stanley highlighted as upside risks to Chipotle.

SSS levels take longer to recover in a recessionary environment. Valuation demanding; a less defensive consumer discretionary stock. Food safety issues recur (even contained events could be overemphasized by the media), Morgan Stanley highlighted as downside risks.