Chipotle Mexican Grill (NYSE:
started as a single restaurant in 1993. Today, it is a burrito
mega-chain, with nearly 1,100 restaurants across the United States.
During this time, the company's stock price has risen almost as
spectacularly as its growth in store locations. In 2006, the stock
went public at $41.25. Today, the stock trades nearly 630% higher,
recently touching an all-time high above $300.
Further, the stock has recently broken out of a highly bullish
formation. The technical pattern, combined with the fundamentals,
point to much further price
ahead. Traders looking to achieve a 20% gain may want to consider
taking a long position in this high momentum stock now -- before it
completes its next leg higher.
The formula for success
One of the reasons Americans have been flocking to Chipotle is
because its ingredients are fresher and healthier than its
fast-food rival, Taco Bell (a subsidiary of
YUM Brands (NYSE:
Although Chipotle's locations are limited compared to Taco Bell,
the company is rapidly expanding. During the first-quarter of 2011,
the company opened 12 new restaurants in the United States. By the
end of the upcoming second-quarter, Chipotle is expected to open an
additional 140 U.S. stores. Stock market research group Trefis
projects Chipotle's restaurant count could shortly reach 2,100, up
from just over 1,000 today. This rapid growth adds up to huge
potential increased sales and profits for the stock.
Furthermore, since all of Chipotle's outlets are company-owned,
management hand picks each
, meaning newly opened outlets are in optimally profitable
locations. And in addition to domestic expansion, the company is
also looking to break into the European market.
This past June 27 trading week, Chipotle announced -- for the first
time in three years -- it is increasing menu prices at its
Northeastern and Southeastern U.S. locations, to offset higher
costs. Chipotle doesn't think the price increase will affect
customer visits, and shareholders responded well to the news.
Following the announcement, the stock hit an all-time high above
psychologically important $300 round number resistance.
The Technical Picture
Technically, Chipotle looks strong. The stock has been in a
since late 2010, when it was trading around $80.
The stock has been steadily climbing since that time. In March
bullishly broke above old resistance -- which had become new
support -- around $250. In doing so, the stock bullishly completed
a large ascending triangle pattern.
Upon completing this pattern, the shares were then wedged between
$250 support and resistance around $290. However, this past June 27
trading week, the stock broke above this resistance, reaching an
all-time high above $308.
With no historical resistance in sight, the stock appears ready
According to the
for the recently completed ascending triangle -- calculated by
adding the height of the triangle to the breakout level -- shares
could reach a price target of $371.11 ($295 - $213 = $82); $295 +
$82 = $377). At current levels, this represents a potential gain of
Fundamentally, the burrito chain looks poised for healthy growth
The stock beat analysts' first-quarter sales expectations of $494.6
million, while revenue for the period increased 24% to $509.4
million, up from $409.7 million in the year-ago quarter. A boost in
same-store-sales, combined with an increase in customer visits,
Second-quarter results will be reported on July 19. Analysts
project revenue to increase 19.4% to $557.3 million, from $466.8
million last year. For the full 2011 year, revenue is expected to
rise to $2.2 billion, a 19.4% increase from $1.8 billion last year.
By 2012, analysts expect revenue will increase a further 16.9% to
outlook is equally strong. First-quarter earnings rose 20% to $1.46
per share, from $1.19 in the comparable period a year ago. Analysts
expected slightly lower earnings of $1.43 per share. Better cost
control measures, combined with strong sales, contributed to the
For the upcoming second-quarter, analysts project earnings will
rise 15% to $1.46, from $1.68 in the same quarter a year-ago. For
the full 2011 year, the 25 analysts following the company project
earnings will rise 21% to $6.81, from $5.64 last year. With the
restaurant chain likely to keep adding store locations, analysts
predict 2012 earnings will increase a further 24% to $8.42.
Although Chipotle is richly valued, the company is in a strong cash
position, with $327.9 million in cash and only about $3.8 million
. This financial liquidity gives it the opportunity to continue
opening new store locations down the road.
Action to Take -->
Given that Chipotle Mexican Grill is technically and fundamentally
strong, traders should consider going long. Based on the measuring
principle, my target is $377.00, good for a gain of about 20%. My
stop-loss is $249.57, near a key
. If the stock fell below this price, it would break the Major
-- Dr. Melvin Pasternak
P.S. -- Few investors realize that a 20-year energy agreement
between the United States and Russia is about to expire. This deal
supplies 10% of America's electricity. As broke as our government
is, the situation is so serious that President Obama is asking for
$36 billion to avert this crisis. And Republicans support him.
Here's what's going on…
Disclosure: Neither Melvin Pasternak nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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