Chipotle Mexican Grill Inc. (CMG) rose more than 3% on Wednesday after beating top- and bottom-line analyst estimates. Revenue rose 28.2% to $1.07 billion – beating estimates by $20 million – driven by a 17.8% increase in comparable restaurant sales and 57 new restaurants. On the bottom line, earnings per share jumped from a loss of $0.88 to a gain of $1.60 per share and beat analyst estimates by $0.33 per share.
The company recently increased its prices by about 5% across 20% of its restaurants, which marks its first price hike since the food safety scare. These efforts haven’t affected customer traffic, which improved during the last quarter, but they did increase the average check despite reduced promotional activities. Management expects further high single-digit improvements to comparable sales in 2017 with 195-210 new restaurant openings.
Activist investor Bill Ackman also holds a massive 10% stake in the company. While he registered to sell nearly three million shares back in March, the move merely provides his hedge fund with the ability to do so. The restaurant chain’s recent price improvement may give the high-profile activist hedge fund a reason to continue holding onto the stock and pushing for change with the four board seats that it now controls.
Despite the strengthening fundamental case, the stock could see some technical pressure to consolidate before any more significant move higher.
The relative strength index (RSI) has been in overbought territory since breaking out from trend line resistance, which could indicate a near-term pullback. The stock could also experience some resistance at the psychologically-important $500.00 level before moving up to the next major trend line resistance at around $550.00. If a pullback were to occur, traders could see the stock move closer to support levels at around $450.00.
Traders should also keep in mind that Bill Ackman’s stock position could become a liability in the event that he decides to divest his position to lock in profits.
Charts courtesy of StockCharts.com. Author holds no position in stock(s) mentioned except through passively managed index funds.