By Davit Kirakosyan
Jake Bartlett from Truist Securities released a report on Chipotle Mexican Grill, Inc. (NYSE:CMG), expecting a lift or ease of meaningful margin pressure for the company in H2/22 given the improving avocado supply.
The Hass Avocado Board estimates avocado shipments to be up 2.1% year-over-year in Q3/22, which could drive easing avocado prices and impact restaurant margins by approximately 30bps.
Avocado prices were up 64% year-over-year in Q1 and up 65% quarter-to-date in Q2 and represent approximately 9% of Chipotle Mexican Grill's Cost of Goods Sold (COGS).
According to the brokerage, avocado supply typically follows a 2-year cycle, with strong years followed by weak years. Given that trend, the brokerage expected supply in 2022 to expand, but instead, it contracted in the first half of the year due to fewer shipments from Mexico (approximately 80% of supply). The Hass Avocado Board's projections reflect the typical trend resuming in Q3.
Given the estimated impact on the company’s margins from the 10% change in avocado prices, the brokerage expects an impact on annual EPS by approximately $0.65, or approximately 2% of its 2022 EPS estimate.
The brokerage maintained its buy rating and $2,000 price target on the company’s shares.