Pricing energy questions loom massive for Chipotle earnings (NYSE:CMG)

After Tuesday’s market shut, common restaurant chain Chipotle Mexican Grill (NYSE:CMG) is because of publish its third quarter earnings replace. Questions on the inflationary impacts and the flexibility of the chain to maintain demand as customers in the reduction of on spending will likely be entrance and heart.

Analysts anticipate the California-based burrito-focused chain to publish $9.19 in earnings per share and $2.23B in income. The corporate has crushed EPS estimates in 7 of the previous 8 quarters, besting income expectations in 6 of these studies.

Chipotle (CMG) shares have considerably outperformed the market in 2022, marking solely about an 8% decline in distinction to an over 20% drop within the S&P. When in comparison with its sector through merchandise just like the AdvisorShares Restaurant ETF (EATZ), the inventory once more has notched a double-digit proportion of outperformance.

Regardless of the discretionary nature of restaurant purchases, Chipotle (CMG) is seen as a defensive choose by many analysts, maybe lending to that outperformance. Oppenheimer was one such agency, highlighting the pricing energy of the chain even amidst an unsure macroeconomic surroundings. For instance, the chain’s working margin rose 230 foundation factors within the second quarter regardless of rising enter prices.

“This [bullish] thesis is additional enabled by accelerating unit progress and a CMG meals commodity setup that seems to be bettering, based mostly on our up to date work,” Oppenheimer analysts stated in a word to shoppers shortly earlier than the report. “Close to time period, we forecast an EPS beat in 3Q22 (10/25 print) and imagine the purchase facet’s nervousness round 4Q22 tendencies presents an actionable alternative.”

Cowen’s evaluation additionally indicated that demand stays sturdy even because the restaurant continues to hike costs in 2022. The agency expects identical retailer gross sales progress of 6% in Q3, above the 5.5% consensus and in addition above-consensus identical retailer gross sales in 2023. Each Cowen and Oppenheimer additionally indicated that steering could possibly be raised on Tuesday, cementing a “Purchase” score on the inventory from each corporations.

Visitors metrics additionally counsel sustained reputation for the chain. In response to information analytics agency Placer.ai, month-to-month visits have grown yr over yr all through 2022, contrasting shapely with fast-casual friends. Placer’s evaluation mirrored 8.1%, 11.7% and 5.5% foot site visitors will increase in July, August and September whereas general trade site visitors declined from the prior yr.

Indicative of the rising bullishness amongst Wall Road analysts heading into the quarter, EPS estimates had been revised upward 30 occasions previously 90 days. In response to SeekingAlpha surveys, the consensus score stays a “Purchase” with a consensus worth goal of $1787.97.

In contrast, SeekingAlpha contributor Shri Upadhyaya sees a possibility for bears as bulls develop overconfident.

“The inventory is overvalued and even after you think about its future progress, it trades at nearly 47 occasions its earnings and 5 occasions its gross sales,” he wrote on October 20. “When you think about this towards its sector median (Shopper Cyclicals) of P/E at 12 and P/S at 0.8, the differential is just too massive to be ignored.”

Dig into the valuation metrics for the inventory.