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Chipotle Mexican Grill, Inc. (CMG) Beefing Up Before Earnings

 December 19, 2012 09:28 AM

(By Rich Bieglmeier) After reviewing the menu of sectors and their performance, Wall Street appears to ordering restaurant stocks in heaping portions. As iStock paraded through the charts of restaurants and bars stocks, we noticed many in the group moving higher. Clearly, institutions are moving money into the sector.

Chipotle Mexican Grill, Inc. (CMG) could be a beneficiary of the street's interest. The Mexican-Food chain's price got hammered in mid-October following an earnings report that gave traders profit poisoning. After burping up poor sour earnings, CMG shares dropped from $285.93 to 243.00, close-to-close.

[Related -Chipotle Mexican Grill, Inc. (CMG) Extends Gain In Strong Uptrend]

Investors gobbled up the discounted restaurant stock scraps like the family dog since falling off the table, and closed the eps-caused gap down. Now we see a couple of encouraging patterns emerging on Chipotle's stock chart.

The stock price may have traced out a rounding bottom, or even a cup-and-handle, either way, they are both bullish. CMG appears headed for $300. If the price can bypass 3 bills, then the next layer of resistance can be found at $320 followed by $340. With 15% of the burrito builder's float (stock available for trading) sold short, iStock believes a push beyond $300 could lead to some short covering.

Chipotle Mexican Grill's next attempt to garner Wall Street's approval will be late in January when fourth quarter earnings are scheduled to be released. Investors will be watching to see if the company's comparable restaurant sales can rebound after falling to 4.8% for the third quarter of 2012, which is much lower than 8.3% for the first nine months of 2012. That's why the stock price got roughed up.

[Related -Chipotle Mexican Grill, Inc. (CMG): This High-Flying Stock Could Tumble 50%]

Analysts believe CMG will earn $2.09 for the quarter, down from $2.18 ninety-day ago. iStock thinks analysts could revise estimates a little lower before the quarterly report card is due. For October and November, Chicken prices were up more than 1% total, beef increased by 6.49%, and pork jumping 13.64%.

For next year, the consensus eps estimate is $10.41 or 17.10% higher than this year's consensus. The fast-casual, fresh Mexican-food restaurant trades with a forward P/E of 28.09, which is rich for our blood.

Overall, we think there is margin risk for Chipotle Mexican Grill, Inc.'s (CMG) upcoming earnings; however, shares could make a nice, short-covering driven pop. Super aggressive investors might consider January $300 call options if the stock price puts $300 in the rearview mirror. Otherwise, we'd wait to see if margins rebound before committing new money to the stock.
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