Analyst Note| Nicholas Johnson, CFA |
With narrow-moat Chipotle’s stock remaining on a tear heading into its first-quarter earnings release, we believe investors were keen to find out how tenuous its spot on the perch would prove to be. Strong execution, particularly around strategic growth themes like digital and convenience, supported another quarter of solid results (revenue in line and earnings ahead of FactSet consensus, respectively). Uncertainty continues to litter the horizon (evidenced by management’s unwillingness to give full-year comp guidance), but at least for now, the firm continues to dispel any concerns about the frailty of its momentum. Incorporating time value since our last update, in conjunction with a slightly better comp outlook, should increase our $1,100 fair value estimate by a high-single-digit percentage. Nevertheless, we continue to see the current valuation as irreconcilably rich. The assumptions implied by today’s market price stretch credulity, in our view, and seem divorced from the very real potential for execution missteps and competitive fervor as the pandemic eases.