High Growth Expected From Chipotle, Can It Hold Margins?

| About: Chipotle Mexican (CMG)

Chipotle Mexican Grill Inc. (NYSE:CMG) is set to report FQ4 2013 earnings after the market closes on Thursday, January 30th. Chipotle is an American chain of fast-casual Mexican restaurants specializing in burritos, tacos, burrito bowls, and salads. The company has been enormously successful in recent years and has expanded aggressively to over 1500 stores between the U.S., U.K., and Canada. New stores and an increased focus on the recently established catering business are expected to bring a significant increase in revenue, analysts are predicting an 18% YOY sales increase. However, investors have some concern about Chipotle's ability to maintain the profit numbers forecasted by Wall Street. Here's what analysts are expecting from Chipotle.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.image

(Click Here to see All Estimates for Chipotle)

The current Wall Street consensus expectation is for Chipotle to report $2.52 EPS and $825.39M revenue while the current Estimize.com consensus from 31 Buy Side and Independent contributing analysts is $2.51 EPS and $826.82M revenue. This quarter, the buy-side as represented by the Estimize.com community is expecting Chipotle to beat the Street on revenue but come up short on profit.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a small differential between the 2 groups' EPS forecasts and a wide margin on revenue predictions.

By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors, Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus. image

The distribution of estimates published by analysts on the Estimize.com platform range from $2.35 to $2.71 EPS and $806.39M to $836.22M in revenues. This quarter we're seeing a moderate distribution of estimates compared to previous quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings.image

Throughout the quarter, Wall Street lowered its EPS consensus from $2.53 to $2.52 and the Estimize consensus dipped from $2.52 to $2.51. On revenue, Wall Street raised its forecast from $816.97M to $825.39M while Estimize expectations increased from $821.69M to $826.82M. Timeliness is correlated with accuracy and rising analyst revisions at the end of the quarter are often a bullish indicator.


The analyst with the highest estimate confidence rating this quarter is WallStreetBean who projects $2.49 EPS and $820.37M in revenue. In the Winter 2014 season, WallStreetBean rated as the 16th best analyst and is ranked 9th overall among over 3,650 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, WallStreetBean has taken a bearish stance, expecting Chipotle to miss the Wall Street consensus on both the top and bottom line.

This quarter analysts on the Estimize.com platform are expecting CMG to beat Wall Street expectations for revenue but come up short on profit. Analysts are predicting that sales will be up but are questioning Chiptole's ability to maintain the margins expected by Wall Street.

Disclosure: No positions.