There’s a C-suite shuffle going on between Chipotle Mexican Grill (CMG) and another restaurant chain, with CMG’s CEO set to depart, but the bull case is still intact for Chipotle. I am bullish on CMG stock, even while it’s being sold off, especially since the company is a consistent earnings winner with strong fundamentals that won’t necessarily be affected by the news.
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Chipotle Mexican Grill is known for its fast-casual atmosphere and huge, gut-busting burritos. If you like Mexican food and really need to fill your belly fast, you won’t do much better than Chipotle.
Barron’s commentator Teresa Rivas recently took note of Chipotle’s “seemingly endless string of impressive earnings results” and 50-to-1 stock split, and determined that the CMG stock price decline looked “like a buying opportunity.” That’s a reasonable assessment, but now the stock is falling even further. So, let’s figure out what’s going on and determine if this is a good time to consider taking a bite of Chipotle stock.
Chipotle Stock Gets Grilled amid CEO Move
While Chipotle Mexican Grill’s shareholders are still in the green on a year-to-date basis, the stock has fallen sharply from its June peak of around $69. Tuesday’s share-price rout certainly didn’t help the bulls, and an executive-level change is clearly responsible for the sour sentiment.
Here’s the scoop. Coffee shop chain Starbucks (SBUX) just announced that Brian Niccol will be the company’s next chairman and CEO. That would be a win-win for everyone, except Niccol happens to be Chipotle’s current CEO.
So, obviously, it’s not a win-win for everyone. Niccol will join Starbucks on September 9, and he will have to vacate his CEO position at Chipotle in order to do that. For Starbucks stock investors, this is all great news since Niccol is well-respected.
Starbucks’s former CEO, Howard Schultz, commented about Niccol, “I believe he is the leader Starbucks needs at a pivotal moment in its history. He has my respect and full support.” Moreover, Laffer Tengler Investments CEO Nancy Tengler declared that Niccol “just worked magic at Chipotle.” Clearly, Chipotle is losing a highly-renowned leader.
If there’s one thing that the market won’t tolerate, it’s uncertainty. Starbucks now has a more certain future due to Niccol’s good reputation. In contrast, Chipotle has a CEO vacancy to fill and will have to forge ahead without Niccol at the helm.
Consequently, Starbucks stock soared on Tuesday while Chipotle stock swooned. Most of the articles I’ve seen in the financial press are busy chattering about Starbucks. What about Chipotle, though? Is the company just chopped liver now?
“Attractive Buying Opportunity” with Chipotle Stock
Actually, I did find a notable Wall Street expert with a bright outlook on Chipotle Mexican Grill. Specifically, Raymond James analyst Brian Vaccaro believes that the sell-off in CMG stock is overdone, and I tend to concur.
First and foremost, there’s no reason to believe that Niccol is leaving Chipotle because he thinks the company is in major trouble. Instead, Vaccaro proposes that “Niccol’s departure likely reflects an offer ‘he could not refuse’ to build on his legacy and turnaround an iconic brand such as Starbucks.”
This assessment of the situation makes sense. If Niccol can engineer a turnaround at struggling Starbucks, he’ll probably be renowned as a genius and a legend. In any case, Vaccaro doesn’t believe that Niccol’s departure “is a negative read on Chipotle’s current fundamentals or long-term growth prospects.”
I see how Vaccaro reached that conclusion. Chipotle has been consistently profitable and has an excellent track record of beating analysts’ quarterly EPS estimates. In addition, Chipotle has grown its revenue and EBITDA in recent quarters.
Like the rest of us, Vaccaro is awaiting “further details on who will be [the] permanent CEO” at Chipotle. At the same time, the Raymond James analyst feels that the pullback in CMG stock “could create an attractive buying opportunity” because Chipotle’s “strong sales momentum (positive traffic), operations (throughput, automation), and long-term unit growth opportunity remains firmly intact.” Now, that’s what I would call a clear-minded analysis during a turbulent time.
Is CMG Stock a Buy, According to Analysts?
On TipRanks, CMG comes in as a Moderate Buy based on 16 Buys and 10 Hold ratings assigned by analysts in the past three months. The average Chipotle Mexican Grill stock price target is $64.02, implying 26.3% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell CMG stock, the most profitable analyst covering the stock (on a one-year timeframe) is Eric Gonzalez of KeyBanc, with an average return of 34.55% per rating and an 81% success rate. Click on the image below to learn more.
Conclusion: Should You Consider CMG Stock?
Chipotle Mexican Grill is in the hot seat on Wall Street, but Raymond James analyst Brian Vaccaro is keeping a cool head and focusing on Chipotle’s financial strengths. Sure, uncertainty is uncomfortable, but there’s no need to abandon Chipotle stock as the company prepares for the next chapter in its ongoing story.
Thus, I tend to agree with Vaccaro’s view of the Chipotle share-price drawdown as a potentially “attractive buying opportunity.” When all is said and done, I’m willing to deal with the uncertainty and would consider purchasing a few shares of CMG stock.
