Bill Ackman’s hedge fund is buying a 9.9% stake in Chipotle, and there’s reason to believe he wants to make some changes at the embattled burrito chain.
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Chipotle, based in Denver, distributed millions of coupons for free food, and last month gave away free kid’s meals on Sunday.
Bill Ackman is one of the most famous hedge fund managers out there – averaging a yearly return of 12%, “one of the best records in the business” according to Reuters.
Still, Chipotle investors were heartened by Ackman’s involvement. Equities analysts forecast that Chipotle Mexican Grill will post $3.87 EPS for the current fiscal year.
The new position is Ackman’s first addition to the highly concentrated Pershing Square portfolio in almost a year and comes despite the fund’s considerable, although improved, losses in 2016. It is also making a push into burgers. In what should be very obvious, improvements in corporate governance and a greater focus on the turnaround efforts will be in focus. Consider this: By the first quarter of next year, its comparable sales will be measured against its worst quarterly performance on record – the first quarter of this year.
He previously made successful bets on Burger King and McDonalds and remains an investor in Restaurant Brands International (QSR.TO), the company that resulted from the merger of Burger King and Canada’s Tim Horton’s.
Should you endorse the billion dollar move and buy Chipotle stock now?
Kalinowski said “meaningful new blood” was needed on the Chipotle board, which has come under fire for having served too long and for being too close to management.
Ackman may limit new unit expansion, Glass wrote. That’s a message we’ve been telling Money Morning readers all year.
One other influential restaurant analyst Howard Penney at Hedgeye Risk Management warned earlier this week that the company’s stock might crash another 50% due to burrito chain’s struggle to rebound from the damages coming from outbreaks of E. coli, norovirus, and salmonella. The entire restaurant industry has entered a recession, as consumers shift dollars to lower-priced grocery stores. This is because numerous restaurants are struggling due to lower consumer spending. Chipotle has never franchised, and company management has disdained the practice, preferring to operate company stores.
The only thing real thing that will bring a meaningful boost to the Chipotle stock price is sales growth.
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Even with today’s bounce, the Chipotle stock price is down 9.47% year to date. Stifel recommends selling, with a price target of $215.
