As a shareholder in Chipotle Mexican Grill (NYSE: CMG), I was happy to learn yesterday that billionaire hedge fund manager Bill Ackman has taken a almost 10% stake in the burrito chain, sending its shares as much as 7% higher in Tuesday’s after-hours trading session.
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In a regulatory filing sometimes used to signal an activist-investor stance, the hedge fund led by Bill Ackman said it thought the company’s shares were undervalued. In early Wednesday trading, shares in Chipotle were up more than 5 percent, up more than $22 to $436.42.
Chipotle stock has been struggling due to continuous fallout that stemmed from the outbreak of series of food-borne diseases that hit several of its restaurants in the United States since end of previous year.
In fact, since Ackman first started buying the stock about a month ago, he’s already made almost $80 million, according to Fortune’s back-of-the-envelope calculations.
Ackman, who runs hedge fund Pershing Square Holdings Ltd., could reignite efforts to shake up Chipotle’s nine-person board, which has been criticized for its slow response to a food-safety crisis and a lack of diverse viewpoints.
Yet Pershing Square also said it may push for changes to governance.
Chipotle said it welcomes Pershing’s investment, and is looking forward to working with Ackman to boost shareholder value.
Ackman, 50, also spent the summer continuing his war of words with fellow billionaire Carl Icahn over Herbalife.
Ackman resigned from the board of Canadian Pacific on Tuesday and sits on the boards of Howard Hughes and Valeant. Morgan Stanley analysts seem to be equally confused by Ackman’s investment in Chipotle Mexican Grill. According to Chipotle’s latest proxy statement, Ells was paid a total of $67 million in salary and stock awards during the past three years. The company reported $0.87 earnings per share for the quarter, missing the consensus estimate of $0.93 by $0.06. CtW’s Waizenegger said he would like to see the two executives have more stock ownership in the company. 2 analyst believes that the stock is a Buy, which can produce decent returns in the future.
Chipotle could “fill or kill” new concepts.
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Chipotle shares are down around 45 percent from their peak in mid-2015. The investment firm also cut its stake in Mondelez International Inc. this year. The Mexican food chain anticipates to launch a new chain under the name of Tasty made, with the first location scheduled to open in Lancaster, Ohio, this fall. One month later, more than 200 people were diagnosed with norovirus after eating at a Chipotle in Simi Valley, California. Moreover, McDonald’s has the resources to clear the lanes for Chipotle’s worldwide expansion and make it easier to franchise Chipotle’s restaurants, he wrote.
