Friday, February 15, 2008

Chipotle Mexican Grill (NYSE:CMG): Bounce?

Chipotle Mexican Grill (NYSE:CMG) is getting defended by several firms this morning after missing ests last night:

- Baird is upgrading CMG to Outperform from Neutral based on positive view of internal fundamentals andvaluation; would use expected weakness related to Q4 results as buying opportunity; believe 2008 EPS estimates have upward bias, even if difficult macro backdrop continues; consider valuation (prospective NTM P/E 35X; PEG 1.2X) attractive for powerful long-term growth story with robust operating trends. Reits $140 tgt.

- Piper Jaffray reits their Buy and $200 (!) tgt saying that should the market penalize the company for 60% earnings growth (i.e. stock is trading down after market following in line results) they suggest investors use the pullback as a buying opportunity.

Despite difficult market conditions, Chipotle continued to (at least) meet expectations as fourth-quarter earnings increased 59.6% to $0.53 per share; in line with PJ's estimate. Restaurant profit margin increased 210 bps to 22.1% due primarily to the company's ability to effectively manage expenses as well as sale leverage, or the 10.6% same-store sales result.

- Cowen vigorously defends CMG shares on likely weakness this morning after CMG posted '+$0.04 better-than-they-expected' 4Q07 EPS of $0.54 (ex. $0.01 charge) vs. their $0.50E and in-line with mgt's inference at The Cowen and Company Consumer Conference that "4Q07 EPS growth will likely be about in-line with current Consensus' $0.54E'). The headline here is 4Q07's EPS performance of $0.54 was CMG's best operating quarter of 2007 and any model to the contrary is simply intellectually challenged. As such, they would view a sub-$100 CMG share-price open today as an historic buying opportunity for 'the next 5,000+ unit global restaurant company' at such an exciting, early stage in its development.

Notablecalls: What can I say. Buy the stock. It's going to bounce. Would not be surprised to see $100+ level as soon as today! (stock traded as low as $92 in after hours action).

Note there's a 40%+ short interest in the name. The shorts will probably not attempt to chop it down but rather use the weakness to cover! The stock is down from $150.

8 comments:

AJ said...

If it bounces, that would be a gift from Heaven and I would short the bitch out of this one.. Its trading at a very high multiple and given the current market conditions, there aint no room for stocks like these to miss earnings and maintain their multiple.

Cheers..

notablecalls said...

thanks.

Mr Wolf said...

On the other hand, Citigroup is being fairly cautious:

While we like Chipotle's long-term prospects, driven by unit growth, potential pricing power and solid unit economics, we are more cautious in the near-term given the current
macro environment and uncertainty around commodities.

Our target price is reduced to $110 from $135, based on a multiple of 33-34x our '09 est.

GuybrushT said...

Sorry if I'm being a newbie, but NASDAQ shows short interest of 5.90m shares http://tinyurl.com/2zhwuo . With 32.91m shares outstanding, it sounds like 18% is the short interest ratio as of 1/31. How did you get 40%, because the short squeeze thesis would be very strong if the short int ratio jumped from 18% to 40% in the last 15 days!!! Intraday seems to be creeping up from ~95 to ~98 so nice gains if you timed it to perfection :)

FeirFactor said...

You good baby.

notablecalls said...

GuybrushT: Short int. is calculated best on free float.

Feir: yeah baby, yeah.

NC

FeirFactor said...

guybrusht:

To answer your question about the correct short interest %, you might not know that Chipotle has quite a bizarre share structure.

There are two classes of shares: A (14.5 million) and B (18.4 million).

Even though there are more Class B shares, the Class A shares are the ones that trade far more actively and that are therefore generally the focus of analysis.

The B shares, even though they actually have 10 times the voting power, have traded at a substantial discount to the A shares. Nobody really knows why.

Anyways, the 40% short interest comes from looking exclusively at the Class A shares. The 5.9 million short interest refers to the A shares. Divide that into the 14.5 million outstanding and you get the 40% short interest.

The B shares also have 2.1 million shares sold short - for an 11.4% short interest there.

Totally bizarre I admit. That's where the 40% short interest number, which is the correct number as far as a short squeeze goes, comes from.

lowly habitat said...

i just wonder when this article was posted. i checked friday morning around 8 am and didnt see it but the post says 8:01am. is that different then EAST COAST? i missed ISRG post 2 weeks ago the same way, checked Noteable Calls around 8 am EST and nothing. whats the deal!!