Chipotle Stock Eyes New Buy Point In Volatile Market – Investor's Business Daily

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Chipotle Mexican Grill

Chipotle Mexican Grill

CMG

$9.72 0.74% 15%

IBD Stock Analysis

  • Chipotle is forming a new pattern with a 1384.56 buy point.
  • Shares are also holding above the 50-day line amid market volatility.
  • The relative strength line is at all-time highs.

Composite Rating

Industry Group Ranking

Emerging Pattern

Three Weeks Tight

* Not real-time data. All data shown was captured at 12:31PM EDT on 09/11/2020.

Chipotle Mexican Grill (CMG) is the IBD Stock of the Day. Chipotle stock has been trading tightly over the past few weeks, and has been outperforming a market that has been choppy this week.

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The fast-casual Mexican chain has been rebounding following its second-quarter earnings, reported in July. Analysts have remained upbeat about the company’s investments in drive-thru and delivery. And Chipotle’s CEO on Thursday told Bloomberg that he expected a massive jump in digital sales, as people remain reluctant to dine out in the coronavirus pandemic.

However, with the current market uptrend under pressure, investors should be cautious about buying stocks, IBD’s research suggests.

Chipotle Stock Sets Up

If trends hold, Chipotle stock will likely be in a three-weeks-tight pattern after Friday. If that pattern takes shape, the buy point for the stock would be 1384.56 — 10 cents above the all-time high the stock reached last week.

Share were down 0.5% to 1301.77 in the stock market today. Chipotle is also currently a Leaderboard member.

Chipotle stock is also holding above its 21-day line as well as its 50-day line, a key test of investor support. Chipotle’s relative strength line, which rises the more a stock pulls ahead of the S&P 500, is at an all-time high.

Digital Sales Doubling

CEO Brian Niccol said he sees Chipotle’s digital sales hitting $2.4 billion this year, more than double the $1 billion last year, according to Bloomberg.

“Our digital business is going to stay around as dining room business comes back,” he told the news outlet.

Even as smaller restaurants try to stay above water after, Chipotle is expanding. In July, Chipotle said it would open its 100th “Chipotlane,” its drive-thru pickup lanes for digital orders. The chain, in July, said it planned to hire up to 10,000 employees over the next few month.

“Due to an increase in digital business, restaurants featuring a Chipotlane require more staff than traditional Chipotle restaurants,” the company said then.

The company’s second-quarter earnings beat expectations. And the company reported positive same-store sales for June and July. However, Chipotle stock, then hovering at record highs, fell after the report.

Truist Securities analyst Jake Bartlett, in a research note on Wednesday, said Chipotle “appears to have launched a widespread menu price increase test for delivery.” Higher prices, he said, would help boost margins. He also said he believed that carne asada was set to come back to Chipotle’s menus at the end of the month, potentially helping nearer-term sales.


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Drive-Thru Strategy

Cowen analyst Andrew Charles, who covers Chipotle stock, also praised Chipotle’s drive-thru strategy. Because Chipotle gears those drive-thrus toward digital orders, they contributed more to profits, moved customers through the line faster, and offered more data into consumer purchasing patterns.

“We argue Chipotle is uniquely positioned to benefit with this new format given digital sales that were an impressive 20% of sales pre-COVID-19, while the concept does not have any traditional/legacy drive-thru operations that would require customer behavior to be altered,” he said in a research note last month.

Chipotle stock has an 86 Composite Rating. Its EPS Rating is weaker, at 35.

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