Chipotle Mexican Grill, Inc. (CMG) Stock Needs MUCH More Than Ackman to Win

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Bill Ackman of Pershing Square Capital Management L.P. has another great investment idea: Chipotle Mexican Grill, Inc. (NYSE:CMG). Pershing Square disclosed in September it was buying shares and now owns almost 10% of Chipotle stock, worth about $1.2 billion.

Chipotle Mexican Grill, Inc. (CMG) Stock Needs MUCH More Than Ackman to Win

Over the last six months, CMG stock has lost almost 10% of its value, after plunging from a high of $725 per share in September, 2015. Chipotle stock currently trades at a little over $400.

Reports are that Pershing Square will soon get seats on the CMG board, which will be reconfigured. Chipotle’s problems are now Bill Ackman’s problems.

CMG’s goal, as CFO Jack Hartung said recently, is to win back investors by returning to 20% margins, $10 of earnings per share each year, cutting costs on food and making the work more efficient. He also wants to give shareholders like Ackman more information on sales and margin trends.

Analysts are as skeptical about the doctor as the patient.

Analysts Say Sell CMG Stock

In announcing its latest results, a small profit of $7.8 million, 27 cents per share and revenue of $1 billion, Chipotle CEO Steve Ells discussed the company’s turnaround plans on a conference call.

Analysts were skeptical. Guggenheim now rates it a sell. There are now almost as many analysts screaming sell as buy.

One professional bear, Howard Penney of Hedgeye Risk Management, sees Chipotle stock falling to $200, saying management has been slow to acknowledge problems and opening another 200 stores at this point is madness.

CMG stock’s problems go back over a year, to a 2015 E. coli outbreak that eventually sickened 500 and the revelation that the chief marketing officer was on drugs. Management was also accused of inflating the Chipotle stock price while selling shares and there was even a sexual harassment suit.

More recently, the CMG has been sued for claiming its new chorizo burrito has just 300 calories and it shuttered an Asian restaurant concept, while opening a new burger outlet.

Want some good news? The company recently won a newspaper taste test against rival Qdoba, owned by Jack in the Box Inc. (NASDAQ:JACK), in Manhattan. Manhattan, KS. The food really isn’t bad, young women seem to have regained trust in the brand, and there is a base to build on.

Bill Ackman Needs a Win

As skeptical as analysts may be about Chipotle, they are more skeptical about Ackman.

Pershing Square Capital Management’s investments are down 21% so far this year, and assets under management have fallen from $17.5 billion two years ago to $10.5 billion. The publicly held fund Pershing Square manages, Pershing Square Holdings Ltd. is down nearly 40% since going public in late 2014.

This is the super genius who hired Ron Johnson to run J C Penney Company Inc. (NYSE:JCP), which nearly died in the process. He bought Valeant Pharmaceuticals Intl Inc (NYSE:VRX) in March 2015, when it was near $200, and it’s now below $20. He shorted Herbalife Ltd. (NYSE:HLF) in 2012, calling it a pyramid scheme when the stock was at about $44, and it’s now at $51.

Bill Ackman is a home run hitter who is striking out, a pitcher who has lost his fastball, a star player who seems to have lost a step. He’s down, not yet out, but the crowd is growing restless.

Bottom Line on Chipotle Stock

Ackman does have some winners in his current portfolio. His biggest holding is Restaurant Brands International Inc (NYSE:QSR), a stock I like, is up over 30% in the last year. But he needs a win he can take credit for.

Could it be Chipotle stock? Wall Street, as I noted, is skeptical of both the doctor and his patient, but potential for CMG stock remains, and stranger things have happened.

Watching Ackman and Chipotle struggle together should at least be entertaining. I suggest we all watch from the sidelines.

Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.

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Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


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