Where Is Chipotle Stock Headed Post Stock Split?

Chipotle Mexican Grill stock (NYSE: CMG), a fast-casual restaurant chain that focuses on fresh and organic ingredients in burritos, salads, and more, announced a 50-to-1 stock split. That means the number of shares one owns will increase by 50x, i.e, 50 shares now owned for every 1 share previously owned. This is typically done to attract more retail investors into the company since the split of the company’s outstanding shares leads to the stock trading at a much lower price afterward. Since going public, this is the first time Chipotle is making the company’s stock more affordable for its investors. As such, stock splits don’t add any value to the company, but are often seen as management signaling optimism for the future. CMG stock closed at nearly $3280 on Tuesday, June 25, and currently trades at almost $66 post-stock split (as of June 26). We have revised Chipotle’s Valuation to $66 per share (from a previous (pre-split) $2794), based on a $1.12 expected EPS (post-split) and a 58.8x P/E multiple for the fiscal year 2024 – inline with the current market price. We also forecast  Chipotle’s Revenues  to be $11.4 billion for the fiscal year 2024, up 15% y-o-y. CMG stock has seen a 44% growth year-to-date. In comparison, CMG’s peer McDonald’s (NYSE: MCD) stock is down 13% since the beginning of this year. It should be noted that CMG’s positive performance can be attributed to restaurant-level operating margin expansion, menu innovation, price increases, and good execution of the company’s digital strategies. Of course, the stock-split announcement has also helped the stock to gain some momentum.

CMG stock has seen extremely strong gains of 115% from levels of $30 in early January 2021 to around $66 now, vs. an increase of about 45% for the S&P 500 over this roughly 3-year period. However, the increase in CMG stock has been far from consistent. Returns for the stock were 26% in 2021, -21% in 2022, and 65% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that CMG underperformed the S&P in 2021 and 2022.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could CMG face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

Chipotle’s first-quarter earnings beat analyst expectations on both the top and bottom lines. Its average restaurant sales rose 7% year-over-year (y-o-y) to $3.1 million in Q1, despite adding 47 new restaurants over the same period. It continues to post healthy sales and profitability growth in the first quarter, which is a big step in the right direction for the popular Tex-Mex chain. In Q1, Chipotle’s revenue grew 14% y-o-y to $2.7 billion, on the back of 7% growth in comparable restaurant sales (outlets in operation for 13 calendar months at a minimum). In addition, the company’s earnings per share rose 27% y-o-y to $13.37 in Q1. Digital sales continue to be strong at almost 37% of the core food and beverage business in Q1, despite the return of in-person dining. Chipotle’s highest-margin sales are digital orders, so momentum on this front serves the business well for continued profit growth in the long run. Chipotle’s reward program (launched in Q1 2019) is gaining steam with an outstanding 40 million members (as of Q1 2024), wherein each purchase wins points that can be redeemed for food.

For full-year 2024, Chipotle is forecasting mid-to-high single-digit growth in comparable restaurant sales assuming current sales trends continue. In 2024, it counts on opening 285 to 315 new restaurants with over 80% having Chipotlane (drive-thru).

It is helpful to see how its peers stack up. CMG Peers shows how Chipotle’s stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 6/26/2024
[2] Cumulative total returns since the end of 2016