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Chipotle Mexican Grill Offers Another Opportunity to Enjoy Their Cuisine

Shares of Chipotle Mexican Grill (NYS: CMG) are down about 10% following the Q2 earnings report, but this is not the time to head for the exit. The company’s report was mixed but not worth 10% given the growth outlook, which includes an international expansion. Some takeaways from the report include double-digit top-line growth, wider margins, and better-than-expected earnings, which will all support the market over time.

Chipotle Mexican Grill had a great quarter with revenue of $2.51 billion, growing 13.6% compared to last year. The problems for the market begin with the comp to the consensus, which is negative. The mitigating factors are that the miss is marginal at best, about 80 basis points, offset by margin improvement.

On a comp basis, comp store sales are up 7.4% to miss consensus by 30 bps, with in-store sales up 15.8% across the chain and digital accounting for 38% of revenue. Notably, the new menu item Chicken Pastor drives this quarter’s success and accounts for 1-in-5 transactions.

The margin news is mixed with restaurant-level operating margin improving by 230 bps and operating margin by 190 bps. Both are less than expected but prove the company has leverage and pricing power.

Guidance is another mixed bag, with Q3 expected to experience additional slowing but for the full year to be solid. The Q3 revenue target is growth in the range of low-to-mid-single-digits, with the full year at mid-to-high-single-digits. The CEO commentary highlights the reference to investments laying the groundwork for international growth.

The analysts have begun to lower their targets for CMG stock but take that with a grain of salt. The 5 revisions to show immediately after the release are all downward but consistent with the consensus estimate. Share repurchases will help with the momentum as the board authorized another $100 million in repurchases, bringing the remaining authorization up to $294.7 million or about a half percent of the market cap.

Chipotle Mexican Grill shares fell about 10% following the Q2 release but have halted the plunge above the long-term EMA. This is a sign of potential support at a critical level that could lead to a rebound if confirmed. If not, this stock could fall to the $1800 level or lower, where it would present a better value and opportunity for investors.

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