Skip to Content
Stock Analyst Update

Why We’re Optimistic on Chipotle’s Future

Third-quarter earnings reveal promising early returns from CEO Brian Niccol’s appointment with several intriguing initiatives left in the pipeline


We believe investors should walk away from  Chipotle's (CMG) third-quarter update with optimism, as it's clear that new CEO Brian Niccol is delivering early returns with several intriguing initiatives left in the pipeline. 

While there's no denying the potential appeal of new menu items, restaurant formats (including drive-up windows), and a new loyalty program, it's the ability to execute basic functions like advertising and throughput that was the most impressive takeaway and helps to reinforce the brand behind our narrow moat rating.

While comps of 4.4% were slightly behind Wall Street expectations of 4.9%, it tells us two things. One, the new "For Real" advertising campaign is connecting with consumers while helping to nullify the well-publicized food-safety incident in Ohio. Comparable transactions were flat, but barring a more pronounced economic downturn, we believe transaction growth should turn positive in the fourth quarter with comps remaining in the mid- to high single digits over the near future. Two, digital orders (up 48% to 11.2% of total sales) and delivery are benefiting store-level utilization and should eventually drive greater operating leverage. As it optimizes mobile order and delivery, we believe Chipotle will be positioned to introduce new products like quesadillas, nachos, avocado tostadas, and chocolate milkshakes that should stimulate consumer curiosity without adding undue operational complexity.

While management did not provide full 2019 guidance, we were encouraged that it is planning for a modest increase in store openings (140-155 versus 130-150 in 2018, less the previously announced 55-65 closures). We would not be surprised to see market optimism prop up Chipotle's stock as comps accelerate, though we're only planning a modest increase to our $400 fair value estimate, which already assumes restaurant margins and operating margins will recover to the low to mid-20s and the low to midteens, respectively, over the next five years.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

R.J. Hottovy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.