Skip to Content
Stock Analyst Update

Chipotle: More Than a Comeback Story, but Shares Rich

Our optimism is tempered by a market valuation that assumes unrealistic long-term expectations.


After posting industry-leading comps of 11% (highlighted by 7.5% transaction growth) and restaurant margins expanding 210 basis points to 20.8% during the third quarter, it's clear that Chipotle's (CMG) progress under CEO Brian Niccol is more than your average comeback story. We share Niccol's view that Chipotle can "deliver above industry growth for many years to come," especially with its digital, restaurant format, and menu innovation initiatives starting to scale (while also supporting our narrow-moat rating). That said, our optimism is tempered by a market valuation that assumes unrealistic long-term expectations.

Comps are dominating the headlines following Chipotle's update--coming in ahead of market expectations of 9%--but we believe there are three takeaways that longer-term investors should focus on. Chipotle's digital efforts (mobile ordering and delivery, which increased 88% to 18.3% of sales and should finish 2019 at about 20%) continue to outpace most industry peers while unlocking margin expansion potential. This includes the "Chipotlane" mobile order/pickup lane, which has been successful in early tests and will likely be a feature in the majority of new openings (including the 150-165 expected in 2020) We're also intrigued by Chipotle's "stage-gate" process, which measures a new product from a customer, financial, and operations standpoint in a few test markets before a nationwide rollout. Chipotle's carne asada promotion--which will end in November--is validation of this process and will be a blueprint for new product launches in future.

Based on the comp benefit from new product launches and the cash-on-cash return benefits of the Chiptolane format, we're planning to raise our $600 fair value estimate by almost 10%. While we believe the market will continue to reward this name with a premium valuation in the near term, the natural moderation in top-line trends could bring Chipotle's current trading multiple (45 times earnings) closer to its peers.

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.