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Chipotle & Other Restaurant Stocks Set to Beat Earnings

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Chipotle Mexican Grill, Inc. (CMG - Free Report) is set to report earnings after market close on Oct 22. Food safety issues had troubled the fast food chain owner for several years, with its same-store sales growth taking a beating. But thanks to the new management, such concerns have ebbed considerably.

In fact, same-store sales, which are the best retail metric to determine the health of a company, increased 6.1% in the fourth quarter of 2018, 9.9% in the first quarter of 2019 and 10% in the following quarter. What’s more, same-store sales growth has improved for the sixth straight quarter in the second quarter.

Market pundits, thus, widely expect same-store sales to have maintained the uptrend in the third quarter. Same-store sales are more likely to rise on the company’s stellar momentum in digital. This can be seen in the 99.1% year-over-year uptick in second-quarter digital sales which accounted for nearly 18.2% of total sales. Just to get an idea of how fast digital sales are growing, one can see that the second quarter’s digital sales equaled the total digital sales for the whole of 2016.

By the way, the Zacks Consensus Estimate for third-quarter revenues is pegged at $1.38 billion, suggesting a rise of 12.4% from the same period a year ago.

 

Meanwhile, there are several other factors that could boost Chipotle’s third-quarter results. The company’s new item, Carne Asada, has received encouraging response on its unique flavor. The menu was rolled out throughout the nation on Sep 19 and is sure to reflect in third-quarter results.

As almost half of Chipotle’s customers add guacamole to their orders, the 59% drop in avocado prices in the second quarter is likely to have driven Chipotle’s profit margin in the third quarter.

Bank of America Corporation’s (BAC - Free Report) top analyst Gregory Francfort also believes that the recent pickup in sales and the drop in avocado prices will allow the company to come up with encouraging third-quarter results.

For the third quarter, the Zacks Consensus Estimate for earnings per share is pegged at $3.20. This indicates a solid increase from year-ago earnings of $2.16.

 

To top it, Chipotle has an Earnings ESP of +2.51%. This is Zacks’ proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

No doubt, upbeat earnings results are expected to lift the company’s stock price. Thus, the company’s expected earnings growth for the current year is 48.2%, way more than the Retail - Restaurants industry’s projected rally of 2.9%. So far this year, the Zacks Rank #2 (Buy) company has outperformed the broader industry (+97.2% vs +22.9%). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

But why just Chipotle? A few other restaurant stocks are also likely to serve up an earnings beat and help you maximize your returns. In order to narrow the search, we have selected restaurant stocks that flaunt a positive Earnings ESP.

Shake Shack Inc. (SHAK - Free Report) owns, operates, and licenses Shake Shack restaurants (Shacks) in the United States. Its Shacks offer hamburgers, hot dogs, chicken, shakes, frozen custard, beer, wine, and other products. The company is expected to report earnings results for the quarter ending September 2019 on Nov 4. Shake Shack has an Earnings ESP of +2.27%. The company’s expected earnings growth rate for the next year is 16.9%. The stock has a Zacks Rank #3 (Hold).

Texas Roadhouse, Inc. (TXRH - Free Report) operates casual dining restaurants in the United States. The company operates and franchises Texas Roadhouse and Bubba's 33 restaurants. The company is expected to report earnings results for the quarter ending September 2019 on Oct 28. Texas Roadhouse has an Earnings ESP of +9.78%. The company’s expected earnings growth rate for the current quarter and year is 15% and 4.1%, respectively. The stock has a Zacks Rank #3.

Dunkin' Brands Group, Inc. (DNKN - Free Report) develops, franchises and licenses quick service restaurants. The company is expected to report earnings results for the quarter ending September 2019 on Oct 31. Dunkin' Brands has an Earnings ESP of +2.15%. The company’s expected earnings growth rate for the current year is 5.2%. The stock has a Zacks Rank #3.

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