Restaurant Expansion In Mexico And Europe Will Boost Performance

Key Takeaways

• International expansion plans into Mexico, Latin America, and Europe are expected to drive future revenue growth.
  
• Investments in technology and new menu offerings aim to improve efficiency, margins, and transaction growth.
  
• Economic uncertainties, tariffs, and increased competition pose risks to Chipotle's revenue growth, net margins, and market share in the fast-casual dining space.

Catalysts

Owns and operates Chipotle Mexican Grill restaurants.

• Chipotle is expanding its international presence with plans to open restaurants in Mexico by 2026 and exploring further expansion in Latin America and Europe. This international expansion is expected to drive future revenue growth.
  
• The company is investing in technological innovations such as produce slicers and a new equipment package to improve operational efficiency and consistency, which can positively impact net margins by reducing labor costs and enhancing throughput.
  
• Chipotle aims to expand its catering business, currently 1.5% of sales, with a new test involving equipment and technology improvements. This could boost future revenue as catering becomes a larger portion of sales.
  
• Chipotle plans to increase marketing spend over the summer, focusing on digital and social channels, which could enhance brand visibility and drive revenue growth through increased customer acquisition and retention.
  
• The introduction of new menu offerings like Chipotle Honey Chicken and other limited-time offers is expected to drive incremental transactions and support positive transaction growth in the second half of the year, impacting future revenue and potentially earnings.

Chipotle Mexican Grill Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Chipotle Mexican Grill's revenue will grow by 12.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.6% today to 14.8% in 3 years time.
• Analysts expect earnings to reach $2.4 billion (and earnings per share of $1.86) by about April 2028, up from $1.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $2.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.2x on those 2028 earnings, down from 43.7x today. This future PE is greater than the current PE for the US Hospitality industry at 22.6x.
• Analysts expect the number of shares outstanding to decline by 1.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.75%, as per the Simply Wall St company report.

Chipotle Mexican Grill Future Earnings Per Share Growth

Risks

• The slowdown in consumer spending due to economic uncertainty has led to a decline in transaction trends, which could impact revenue growth.
  
• The introduction of tariffs on key ingredients and packaging materials poses a risk to cost of sales, potentially affecting net margins.
  
• The heightened competition in the fast-casual dining space may challenge Chipotle’s ability to maintain market share and revenue growth.
  
• The potential impact of increased capital expenditures due to new tariffs on materials for new restaurant builds could reduce the return on new store investments and compress profit margins.
  
• The ongoing consumer pullback across different income cohorts and geographies suggests macroeconomic pressures may continue, threatening revenue and earnings if not addressed effectively.

Valuation

• The analysts have a consensus price target of $57.939 for Chipotle Mexican Grill based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $68.0, and the most bearish reporting a price target of just $46.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $16.3 billion, earnings will come to $2.4 billion, and it would be trading on a PE ratio of 38.2x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of $50.65, the analyst price target of $57.94 is 12.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.