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Chipotle Surges Following News of Bill Ackman's Investment
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Shares of fast-casual restaurant chain operator Chipotle Mexican Grill, Inc. (CMG - Free Report) rose over 6% in after-hours trading on Sep 6, following the news of a 9.9% investment in the company by activist investor Bill Ackman's hedge fund Pershing Square Capital Management LP.
Based on the latest closing price, Pershing Square’s stake of 2.9 million shares is valued at roughly $1.2 billion. This makes it the second-largest holder of Chipotle shares.
Notably, in a SEC filing, Pershing Square stated that it believes Chipotle’s shares are undervalued and it has a solid brand, unique offering and massive growth opportunities.
Moreover, the hedge fund also revealed its intention of discussing with Chipotle its operations, cost structure, management, strategic plans and other factors.
We note that Chipotle continues to reel under the negative publicity associated with the E. coli and norovirus outbreaks in several states, which surfaced toward the end of 2015.
As a safety measure, Chipotle was forced to close several outlets. Although these were reopened later with fresh ingredients and extensive cleaning and sanitizing activities, the incidents dealt a severe blow to the company's sales.
The fact that Chipotle has used only healthy ingredients despite comparatively high prices has long been its marketing strength. But given the negative publicity related to these food-borne illnesses, Chipotle’s popularity among health-conscious diners is declining.
Moreover, a recent CNNMoney report revealed that nearly 10,000 of Chipotle’s workers have joined a class-action lawsuit against the company for wage theft, thereby compounding its woes.
Nonetheless, the company is leaving no stone unturned to gain back customers through the adoption of new food safety protocols, offering free burritos, buy-one-get-one deals and a few menu innovations.
Bottom Line
Interestingly, Ackman has overseen successful changes at several companies like The Procter & Gamble Company (PG - Free Report) , along with fast-food giants like McDonald's Corp. (MCD - Free Report) and Burger King, where he still has a stake in its parent company Restaurant Brands International Inc. (QSR - Free Report) .
Thus, at this juncture, Ackman’s purchase of nearly a 10% stake in Chipotle bodes well. We believe that although it will take some time for Chipotle to witness a complete turnaround in its business, it seems that the worst is over for this Zacks Rank #3 (Hold) company.
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Chipotle Surges Following News of Bill Ackman's Investment
Shares of fast-casual restaurant chain operator Chipotle Mexican Grill, Inc. (CMG - Free Report) rose over 6% in after-hours trading on Sep 6, following the news of a 9.9% investment in the company by activist investor Bill Ackman's hedge fund Pershing Square Capital Management LP.
Based on the latest closing price, Pershing Square’s stake of 2.9 million shares is valued at roughly $1.2 billion. This makes it the second-largest holder of Chipotle shares.
Notably, in a SEC filing, Pershing Square stated that it believes Chipotle’s shares are undervalued and it has a solid brand, unique offering and massive growth opportunities.
Moreover, the hedge fund also revealed its intention of discussing with Chipotle its operations, cost structure, management, strategic plans and other factors.
CHIPOTLE MEXICN Price
CHIPOTLE MEXICN Price | CHIPOTLE MEXICN Quote
Issues & Remedies
We note that Chipotle continues to reel under the negative publicity associated with the E. coli and norovirus outbreaks in several states, which surfaced toward the end of 2015.
As a safety measure, Chipotle was forced to close several outlets. Although these were reopened later with fresh ingredients and extensive cleaning and sanitizing activities, the incidents dealt a severe blow to the company's sales.
The fact that Chipotle has used only healthy ingredients despite comparatively high prices has long been its marketing strength. But given the negative publicity related to these food-borne illnesses, Chipotle’s popularity among health-conscious diners is declining.
Moreover, a recent CNNMoney report revealed that nearly 10,000 of Chipotle’s workers have joined a class-action lawsuit against the company for wage theft, thereby compounding its woes.
Nonetheless, the company is leaving no stone unturned to gain back customers through the adoption of new food safety protocols, offering free burritos, buy-one-get-one deals and a few menu innovations.
Bottom Line
Interestingly, Ackman has overseen successful changes at several companies like The Procter & Gamble Company (PG - Free Report) , along with fast-food giants like McDonald's Corp. (MCD - Free Report) and Burger King, where he still has a stake in its parent company Restaurant Brands International Inc. (QSR - Free Report) .
Thus, at this juncture, Ackman’s purchase of nearly a 10% stake in Chipotle bodes well. We believe that although it will take some time for Chipotle to witness a complete turnaround in its business, it seems that the worst is over for this Zacks Rank #3 (Hold) company.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>