It has been about a month since the last earnings report for Chipotle Mexican Grill (CMG). Shares have lost about 6.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Chipotle due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Chipotle Q4 Earnings & Revenues Lag Estimates

Chipotle reported fourth-quarter 2020 results, with earnings and revenues missing the Zacks Consensus Estimate, but increasing on a year-over-year basis.

Q4 Earnings & Revenues Discussion

During the fourth quarter of 2020, adjusted earnings of $3.48 per share missed the Zacks Consensus Estimate of $3.70. However, the bottom line increased 21.7% from $2.86 reported in the year-ago quarter.
 
Meanwhile quarterly revenues of $1,607.7 million missed the consensus mark of $1,608 million by 0.2%. However, the top line increased 11.6% on a year-over-year basis. The upside can be primarily attributed to strength in digital sales, rise in delivery menu price along with new restaurant openings. In the quarter under review, Chipotle opened 60 new restaurants (including two restaurant relocations) and closed one, taking the total restaurant count to 2,768.

Digital sales surged 177.2% year over year to $781.4 million during fourth-quarter 2020. Digital sales contributed 49% to sales during the quarter. Notably, collaboration with all major third-party delivery aggregators boosted orders for the company. Also, the addition of Chipotlanes drove the company’s performance, enhancing guest access and convenience.

Comps in the fourth quarter increased 5.7%, following growth of 8.3% in the third quarter of 2020. Notably, healthy demand for Carne Asada along with strong digital sales contributed to the company’s results.

Costs, Operating Highlights & Net Income

During the fourth quarter of 2020, food, beverage and packaging costs, as a percentage of revenues, declined 210 basis points (bps) year over year to 31%. The improvement can be attributed to increase in menu prices, favorable usage of protein mix and better waste control management. However, this was partially offset by rise in dairy prices along with fewer sales of high margin beverages.

During the fourth quarter, restaurant-level operating margin came in at 19.5%, up from 19.2% recorded in the year-ago quarter. The improvement was primarily backed by leverage from the comparable restaurant sales growth, rise in menu prices and lower avocado pricing. However, this was partially offset by increased delivery expenses, exclusion pay and fewer sales of high-margin beverages.

Adjusted net income in the reported quarter amounted to $99.3 million compared with $81 million in the prior-year quarter.

Balance Sheet

A strong balance sheet will help the company tide over the coronavirus-induced crisis. The company had $1.1 billion in cash, restricted cash and short-term investments as of Dec 31. The company doesn’t have any debt.

Moreover, the company had access to $600 million credit facility to help it navigate through the crisis.

Inventory during the fourth quarter totaled $26.4 million compared with $26.1 million in the prior-year quarter. Goodwill (as a percentage of total assets) came in at 0.4% at the end of fourth-quarter 2020.

2020 Highlights

Net revenues in 2020 came in at $5,984.6 million compared with $5,586.4 million in 2019.

General and administrative expenses in 2020 came in at $466.3 million compared with $451.6 million in 2019.

In 2020, diluted earnings per share came in at $12.52 per share compared with $12.38 in the previous year.

2021 Outlook

Given the volatility and uncertainty regarding the coronavirus impact, the company did not provide its comparable restaurant sales growth guidance for 2021. Meanwhile, the company expects to open nearly 200 new restaurants in 2021. However, the new openings might face minimal construction and permit delays owing to the pandemic. Also, it expects 2021 tax rate in the range of 25-27%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 7.58% due to these changes.

VGM Scores

At this time, Chipotle has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Chipotle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.