What happened
Shares of Chipotle Mexican Grill (CMG 2.41%) were moving higher after the burrito chain received a bullish analyst note, showing that the company is performing better than expected during the COVID-19 pandemic.
That, along with broad gains in the market, helped push the stock up 6.1% as of 3:21 p.m. EDT.
Image source: Chipotle.
So what
In a note this morning, Cleveland Research analyst Steven Gojak said comparable sales declines at the fast-casual chain have improved since the beginning of the coronavirus outbreak. According to his channel checks, comparable sales were down between 5% and 10% in late March and early April, which was better than the 20% to 25% decline it showed in the first weeks of the outbreak.
Gojak attributed the improvement to pent-up demand, free delivery, a strong off-premise business, and effective marketing, and maintained his buy rating on the stock.
Now what
Chipotle stock has indeed held up well during the pandemic as the stock is only down 16% from its all-time high just before the outbreak hit. After today's gains, the restaurant stock has actually outperformed the S&P 500 since the sell-off started, rallying back after initial losses. Still, investors may want to temper their expectations for Chipotle, which is set to report first-quarter earnings on April 21. Even if Gojak's numbers are correct, the company will likely see a sharper decline in profits as it has offered free delivery during the crisis to help encourage customers to order from the chain, and a significant number of its restaurants are located in downtown districts that are now empty as office workers are staying home.
After the recent recovery, Chipotle stock continues to look expensive at a price-to-earnings ratio of about 56, and the company is likely to experience some headwinds even after shutdown orders are lifted as Americans may be reluctant to eat or visit crowded restaurants, and a recession is coming. We'll learn more when the company reveals first-quarter results next week.
