The market for Chipotle Mexican Grill (NYSE: CMG) stock served up a nice dip, and savvy investors are buying. Lackluster results and guidance drove the dip in price action, but the move is entirely sentiment-driven; the results failed to impress relative to the consensus estimates but are still excellent, driving value gains for investors. 

The initial takeaway is that the results are mixed for this restaurant stock, but the top-line miss is slim, growth is robust and market-leading, the margin is strong, and the outlook is positive. A deeper look affirms that assessment and strengthens it with balance sheet health and value gains that will help support upward stock price movement over time. Chipotle Mexican Grill stock may not hit new all-time high prices in 2024, but the odds are high that it will in 2025. 

Chipotle Mexican Grill Had a Strong Quarter: New CEO Takes Charge

Chipotle Mexican Grill had a solid quarter despite falling short on revenue relative to the consensus. The company’s $2.79 billion is up 13% despite the miss, which is slim at only 100 basis points. The gain is driven by a solid 6% comp store increase supported equally by transaction volume and pricing. An increased store count also impacted the results, with 86 new locations opened in the quarter, aligning with the outlook for 10% annual growth. Digital is also a driving factor, up by 34%, with much of the strength attributable to Chipotlanes. Chipotlanes are only accessible via digital, driving comp store growth and wider margins at their locations versus other stores. 

The margin news is mixed but favorable to investors. Restaurant-level margin contracted due to higher costs and mix but is offset by spending controls and revenue leverage at the operating level. Operating margin improved by 90 basis points to 16%, driving leveraged gains on the bottom line. The adjusted EPS came in at $0.27, up 17.4% compared to last year and 800 basis points above the consensus. 

The guidance for Q4 is equally mixed, expecting growth at a pace below the consensus forecast reported by MarketBeat, offset by margin strength and a healthy outlook for sustained growth over the long term. The company targets 7,000 stores in North America, a 100% increase from current levels and an international expansion that could more than double the total North American stores. 

The cash flow and balance sheet highlight why Chipotle Mexican Grill is a good buy. The company drives solid cash flow and cash flow growth and can sustain operations, organic store-count growth, capital returns, and balance sheet improvement. Highlights from Q3 include an increased cash position, current and total assets up, only partially offset by increased liability. Regarding liability, the company carries no significant debt and runs with a total liability ratio of 1.5x equity and 0.6x assets, leaving it in a strong financial position. Shareholder equity is up by 17% in addition to the 29% gain in F2023.

Analysts Raise Targets for Chipotle Mexican Grill; Point to New Highs

The analysts' response to Chipotle Mexican Grill’s Q3 results is mixed with a clearly bullish bias. While some analysts lowered their price targets, 75% of the revisions released within the first 24 hours increased the price target. The consensus of the revisions is $65, $2.70 above the broader consensus of targets issued in the last 12 months, with the high-end range above $70. A move to $70 is sufficient for a new all-time high; a move to the consensus is worth 15%. 

The market for Chipotle Mexican Grill stock fell following the release but will likely not remain down long. The analysts' revisions indicate that the company’s fundamental quality demands a higher price. The critical support target is near $56, where evidence of buying activity is already seen. Assuming the market sustains support at this level, CMG's share price action should regain traction soon. If not, this market could fall to the $53 level or lower, where it would present a better value.