Chipotle Earnings: Strong Traffic and Unit Growth Are Encouraging, but Share Prices Still Concern Us

Wide-moat Chipotle posted strong quarterly earnings, with sales growth across income cohorts and an impressive 7.4% increase in comparable transactions assuaging market concerns after a few high-profile earnings misses. While we expect to leave our 2024 targets for $11.1 billion in revenue and 8.8% unit growth largely intact, we expect to raise our $1,800 fair value estimate by a high-single-digit percentage as we now forecast a sharper increase in net unit growth and comparable store sales over the medium term. More concretely, we now expect annual comparable store sales growth of 5% and unit growth of 9.4% between 2024 and 2028, up from 4.6% and 9%, respectively, driven by normalizing construction timelines and stronger comparable store sales benefits from its throughput initiatives and loyalty program innovation than previously expected. We also plan to decrease our Morningstar Uncertainty Rating to Medium from High as we reconsider the firm's sensitivity to systematic risk factors.