Chipotle Stock Passes This Key Test, Nears Buy Point Ahead Of Earnings – Investor's Business Daily

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Chipotle Mexican Grill

Chipotle Mexican Grill

CMG

$22.00 1.66% 24%

IBD Stock Analysis

  • Shares have bounced off the 50-day line, a buy signal.
  • Chipotle stock is also approaching a 1384.56 buy point.
  • The relative strength line has flattened but is still near highs.

Composite Rating

Industry Group Ranking

Emerging Pattern

Flat Base

* Not real-time data. All data shown was captured at 12:59PM EDT on 10/15/2020.

Chipotle Mexican Grill (CMG) is the IBD Stock of the Day. After running higher this year, Chipotle stock recently passed a key test of investor support and is setting up in a base.

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The fast-casual Mexican chain has made gains on its investments in digital ordering, delivery, drive-thru lanes and new menu items. But with third-quarter earnings due on Wednesday, analysts debate how much room the stock has to keep rising.

Chipotle Stock

Shares rose 1.7% to close at 1343.37 in the stock market today. Chipotle stock is in a flat base with a 1384.56 buy point and recently got a bounce off its 50-day line, according to MarketSmith chart analysis.

The line is a key gauge of investor support, and stronger stocks tend to get a lift off the line once they approach it. The move also makes the stock buyable for investors, based on IBD’s research.

Chipotle’s relative strength line — a gauge of a stock’s ability to outperform the S&P 500 — has flattened out in recent weeks. But it is still close to record highs.

However, IBD’s ratings for Chipotle stock are mediocre. The stock has a 76 Composite Rating. Its EPS Rating is 36.


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Investing In Digital

With the population still going out less, analysts have pointed to bigger restaurant chains — with bigger digital and delivery networks and more drive-thrus — as potential gainers in the pandemic. Even as the U.S. sheds jobs, Chipotle this summer announced plans to hire thousands.

And as smaller restaurants face closures due to the coronavirus pandemic, Chipotle, which like other bigger chains has more resources to ride out the crisis, in July said it would “continue to invest in elevating the digital experience” for customers.

Digital sales jumped 216% during the company’s second quarter. Those sales made up nearly 61% of overall revenue during the quarter. However, the company’s same-store sales overall fell. Chipotle stock dropped too after the company reported the results.

In July, Chipotle said it would open its 100th “Chipotlane” drive-thru. Those drive-thrus are geared toward digital orders.


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Different Takes On Chipotle Stock

Truist Securities analyst Jake Bartlett, in a research note this week, said recent checks indicated that Chipotle has further increased delivery menu prices, suggesting that a recent test hike in prices “is not materially impacting demand and could boost both sales and margins.”

However, Stephens analyst James Rutherford said in a research note this week that the “good news” for Chipotle stock was already priced in. And he said ingredient costs, for things like beef and cheese, could weigh on results. He also said that digital demand had “trended down since July.”

“This is not surprising given (1) fewer free delivery offers and (2) a partial normalization of consumer behavior meaning less delivery, less order ahead, and more order in store compared to peak-Covid trends,” he said.

Still, Rutherford said he expected the reopening of the U.S. economy, the return of carne asada to the menu, new beverages and a free Monday delivery offer would help sales trends during the third quarter. And he said digital ordering trends were still stronger than before the pandemic.

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