Wall Street expects earnings growth

The market is in expectation that Chipotle Mexican Grill (CMG) will post earnings for the quarter ended December 2022, up year-on-year on higher sales. An important factor that could affect the short-term stock price is the comparison of actual results with these estimates.

The earnings report, which is expected to be released on February 7, 2023, could help the stock move higher if these metrics come out better than expected. On the other hand, if they miss, the stock can move lower.

While management’s discussion of business terms on the conference call will primarily determine the sustainability of the immediate price change and future earnings expectations, it’s worth having a qualifying view on the odds of a positive EPS surprise.

Zack’s consensus estimate

This Mexican grocery chain is expected to report quarterly earnings of $8.90 per share in its upcoming report, a +59.5% year-on-year change.

Revenue is expected to be $2.23 billion, up 13.7% from the year-ago quarter.

Trend of estimated revisions

Consensus EPS estimate for the quarter has been revised down 1.54% over the last 30 days to current levels. This essentially reflects how the covering analysts collectively reassessed their original estimates over this period.

Investors should note that an aggregate change does not always reflect the direction of estimate revisions by each of the covering analysts.

profit whisper

Estimate revisions prior to a company’s earnings release provide an indication of business conditions for the period for which results are released. Our proprietary surprise prediction model—the Zacks Earnings ESP (Expected Surprise Prediction)—is based on this insight.

The Zacks Earnings ESP compares the most accurate estimate to the Zacks consensus estimate for the quarter; The most accurate estimate is a more recent version of the Zacks Consensus EPS estimate. The idea here is that analysts who revise their estimates just before an earnings release have the latest information, which may be more accurate than what they and others contributing to the consensus previously predicted.

Thus, in theory, a positive or negative outcome ESP value indicates the likely deviation of actual earnings from the consensus estimate. However, the predictive power of the model is only significant for positive ESP measurements.

A positive Earnings ESP is a strong indicator of an Earnings Beat, especially when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold). Our research shows that stocks with this combination produce an upside surprise almost 70% of the time, and a solid Zacks rank even increases the predictive power of Earnings ESP.

Please note that a negative Earnings ESP value is not an indication of an Earnings Miss. Our research shows that it is difficult to predict with any degree of certainty an earnings increase for stocks with negative ESP results and/or a Zacks rank of 4 (Sell) or 5 (Strong Sell).

How have the numbers turned out for Chipotle?

For Chipotle, the most accurate estimate is lower than Zacks’ consensus estimate, suggesting analysts have been downright bearish on the company’s earnings outlook of late. This has resulted in an Earnings ESP of -0.24%.

On the other hand, the stock currently carries a Zacks rank of #3.

So this combination makes it difficult to conclusively predict that Chipotle will beat the consensus EPS estimate.

Does the win surprise story have a clue?

Analysts often consider a company’s historical ability to match consensus estimates while calculating estimates for its future earnings. So, it’s worth taking a look at the surprise history to gauge its impact on the number to come.

For the most recent reported quarter, Chipotle was expected to report earnings of $9.11 per share when it actually posted earnings of $9.51, delivering a +4.39% surprise.

In the past four quarters, the company has beaten consensus estimates for earnings per share four times.

bottom line

A win or miss may not be the only basis for a stock to move up or down. Many stocks end up losing ground despite a drop in earnings due to other factors disappointing investors. Similarly, unanticipated catalysts are helping a number of stocks surge despite a drop in earnings.

However, betting on stocks that are expected to beat earnings expectations increases the odds of success. For this reason, it pays to review a company’s Earnings ESP and Zacks Rank prior to its quarterly release. Make sure to use our earnings ESP filter to uncover the best stocks to buy or sell before they are reported.

Chipotle doesn’t seem like a compelling candidate for earnings growth. However, investors should also be aware of other factors when betting on this stock or staying away ahead of earnings releases.

Expected results of an industrial company

Starbucks (SBUX), another Zacks retail restaurants stock, is expected to soon report earnings of $0.76 per share for the quarter ended December 2022. This estimate indicates a change of +5.6% compared to the previous year. Revenue for the quarter is expected to be $8.79 billion, up 9.2% from the year-ago quarter.

Consensus EPS estimate for Starbucks has been revised up 0.9% over the last 30 days to current levels. However, a higher most accurate estimate has resulted in an earnings ESP of 1.81%.

Combined with a Zacks rank of #3 (Hold), this Earnings ESP indicates that Starbucks will most likely beat the consensus EPS estimate. In the past four quarters, the company has twice beaten consensus estimates for earnings per share.

Stay up to date on upcoming earnings announcements with the Zacks Earnings Calendar.

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Chipotle Mexican Grill, Inc. (CMG): Free Stock Research Report

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