CMG

Chipotle Targets 7,000 Restaurants in North America

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By Brian Nelson, CFA Chipotle (CMG) reported mixed third quarter results October 29 with revenue coming in a bit light relative to expectations and non-GAAP earnings per share outpacing the consensus forecast. Total revenue increased 13% in the quarter thanks to a 6% increase in comparable restaurant sales and new restaurant openings. Comparable restaurant sales missed the consensus estimate calling for 6.4% growth. Still, Chipotle’s comparable restaurant sales growth consisted of higher transactions of 3.3% and a 2.7% increase in average check, a combination we view positively. The burrito-maker’s operating margin was 16.9% in the quarter (consensus was at 15.7%), up from 16%, while adjusted diluted earnings per share came in at $0.27, up from $0.23 in the prior-year period. … Read more

The Difference Between Speculation and Investment

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Brian Nelson, President of Investment Research at Valuentum, discusses the difference between speculation and investment.  Brian Nelson, CFA: This is Brian Nelson from Valuentum Securities. I’d like to talk about the concept of speculation. I think it is best taught with a story perhaps, one of my personal experiences. I used to work on the buy side and one of the more interesting stocks that I pitched in my experience was a company called Synaptics (SYNA). This must have been in 2004-2005 — almost 20 years ago now. Synaptics made an interface for a number of electronic devices, and what it held was some of the technological building blocks for a click-wheel technology. About a year or two later following that … Read more

Paper: Value and Momentum Within Stocks, Too

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Please select the image below to download, “Value and Momentum Within Stocks, Too:” Abstract: This paper strives to advance the field of finance in four ways: 1) it extends the theory of the “The Arithmetic of Active Management” to the investor level; 2) it addresses certain data problems of factor-based methods, namely with respect to value and book-to-market ratios, while introducing price-to-fair-value ratios in a factor-based approach; 3) it may lay the foundation for academic literature regarding the Valuentum, the value-timing, and ultra-momentum factors; and 4) it walks through the potential relative outperformance that may be harvested at the intersection of relevant, unique and compensated factors within individual stocks. To download the full report, please click here (pdf). ———- Actual results … Read more

Chipotle’s Comparable Store Sales Growth Impresses

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Image: Chipotle’s stock has done quite well since the beginning of 2023. By Brian Nelson, CFA On July 24, Chipotle (CMG) reported better-than-expected second quarter results with both revenue and non-GAAP earnings per share coming in above the consensus forecast. Total revenue increased an impressive 18.2%, while comparable store sales leapt 11.1%. Higher transactions of 8.7% and a 2.4% increase in average check drove the comp increase. Digital sales accounted for 35.3% of total food and beverage revenue in the quarter. Chipotle’s operating margin was 19.7%, an increase from 17.2% in last year’s quarter, while its restaurant level operating margin advanced 140 basis points, to 28.9%. Last year’s menu price increases offset inflation of avocados, increased oil usage and higher … Read more

Chipotle’s Same Restaurant Sales Growth Continues to Shine

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Image Source: Valuentum By Brian Nelson, CFA On April 24, Chipotle (CMG) reported excellent first-quarter 2024 results. Total revenue increased 14.1% thanks to comparable restaurant sales growth of 7%, higher transactions and an increase in the average check. Its operating margin came in at 16.3%, which was a nice bump from the 15.5% from last year’s quarter. Chipotle’s restaurant level operating margin also improved nicely by 190 basis points, to 27.5%. Adjusted diluted earnings per share came in at $13.37, which was an increase from the $10.50 mark it achieved in the same period a year ago. During the quarter, it opened 47 new restaurants with 43 of them including a Chipotlane drive thru. Management had the following to say about … Read more

Understanding Stock Splits

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By Brian Nelson, CFA There are few financial topics more misunderstood, in my opinion, than stock splits. Some investors believe that a stock split is a value-creating endeavor brought about by “market forces” that have blessed their company’s stock for one reason or another. They believe that they will get more shares of the company at the same price, thereby doubling their investment value as a result. Unfortunately, this is not correct. In reality, a stock split is a move made at the complete discretion of the company’s board to reduce the nominal price of the company’s shares such that more individual investors can “afford” to buy more of the stock (increasing its ownership base). The primary reason stems from the common belief … Read more

We Remain Bullish; Is This 1995 – The Beginning of a Huge Stock Market Run?

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Image: Large cap growth stocks have trounced the performance of the S&P 500, REITs, and bonds since the beginning of 2023. We expect continued outperformance in this area of the market. By Brian Nelson, CFA We’re now roughly four years past the depths of the COVID-19 meltdown, where equities collapsed in February and March of 2020. As the markets began to recover through 2020, our long-term conviction in equities only grew stronger. We think the biggest risk for long-term investors remains staying out of the market on the basis of what could be considered stretched valuation multiples. As we outlined heavily in the book Value Trap, valuation multiples hardly tell the complete story about a company and often omit key … Read more

Chipotle Rallies, Long-term Outlook Remains Promising

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Image Source: Valuentum  By Brian Nelson, CFA Burrito maker Chipotle (CMG) reported excellent fourth-quarter results February 6 that beat on both the top and bottom lines. Total revenue advanced 15.4% in the quarter, while comparable store restaurant sales increased 8.4% thanks primarily to higher transactions and to a lesser extent an increase in average check. The company’s restaurant operating margin expanded 140 basis points, to 25.4%. Adjusted diluted earnings per share came in at $10.36 per share in the quarter, up 25% on a year-over-year basis. Chipotle opened 121 new restaurants in the fourth quarter, with 110 of them coming with a Chipotlane drive thru. Though the firm has considerable operating lease liabilities, free cash flow came in at $1.22 billion … Read more

6%+ Dividend Yielder Cracker Barrel Needs to Raise Menu Prices More Aggressively

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By Brian Nelson, CFA Cracker Barrel Old Country Store (CBRL) is a high-yielding restaurant idea with a unique concept that has fallen on more difficult times of late. Our recent channel checks indicate that Cracker Barrel has a lot of room to raise prices versus peers, but the firm is having a hard time executing on this front as overall traffic trends remain challenged. Right now, Cracker Barrel yields ~6.3%, and if the company can turn things around, it might make for one of the most interesting income ideas on the market. The high end of our fair value estimate range of Cracker Barrel stands north of $100 (its shares are trading at ~$80 each), but investors should remain cautious … Read more

12 Reasons to Stay Aggressive in 2024

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By Brian Nelson, CFA 1. The Fed has signaled that rate cuts could start with inflation at a 2 handle (2 point something) and not at exactly 2.0%. That means that the Fed may become anticipatory to prevent overshooting to the downside with inflation. We see this as positive for long-duration equities, particularly those whose free cash flow generation is robust in the out-years, inclusive of big cap tech and the stylistic area of large cap growth. 2. Unemployment is at structural lows of 3.7%. Employers are working hard to keep talent on board, and with each paycheck, employees are pumping more and more money into the stock market via retirement accounts. This tailwind remains a stiff one and will … Read more