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Chipotle’s Turnaround Is Working. Should You Invest?

Chipotle’s Turnaround Is Working. Should You Invest?

More than two years after illness outbreaks that sunk the stock, Chipotle has changed its CEO, hiked its prices, and opened new restaurants. And it’s starting to pay off.

In its latest public earnings report, Chipotle (NYSE: CMG) reported a 7.4% revenue increase to $1.15 billion, a 2.2% same-store sales increase, and earnings of $2.13 per share, up more than 33% year-over-year.

As of this morning, shares are up 25% since Wednesday’s close.

Cowen upgraded the company after the results, raising its price target from $275 to $350.



“Chipotle is in the early stages of a turnaround, led by a credible CEO with ample low-hanging fruit including marketing, digital, and menu innovation,” Cowen wrote.

In February, the burrito chain named former Taco Bell chief Brian Niccol as its new CEO. The first-quarter earnings announcement was Niccol’s first for Chipotle where he is focusing on continued growth, including elevated brand relevance.

The company said in a press release that “The increase in revenue was driven by new restaurant openings.” Chipotle also benefited from price hikes that it has rolled out in stores across the country incrementally over the past year.

Higher prices have led to a 4.9% bump in total revenue at existing locations, which “partially offset” the fact that it saw overall fewer total transactions.

Source: TradersPro.



On the earnings news, Chipotle’s share price jumped over night forming a breakaway gap on high volume. A strong breakaway gap like the one we can see in CMG represents a compelling move out of consolidation and indicates a shift in sentiment that will likely last for a while.

“We are in the process of forming a path to greater performance in sales, transactions, margins and new restaurants,” CEO Niccol said. “This path to performance will be grounded in a strategy of executing the fundamentals while introducing consumer-meaningful innovation across the business.”

As the company’s turnaround efforts are already producing positive results, and as the winds of sentiment shift for the company for the first time in two years, now may be a good time to consider Chipotle.



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