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Could Chipotle be sold?

An analyst suggests the chain could be a fetching target, but a deal would be costly.

Could Chipotle’s decline these past two years make it a buyout target? Some people think so.

Two years ago, Chipotle Mexican Grill was one of the hottest stocks on Wall Street and one of the most valuable restaurant companies in the U.S.

The company’s stock was more than $750 a share at one point in 2015, giving it a valuation that made it as close to untouchable as possible.

A series of foodborne safety incidents that year changed all that. Unit volumes fell by nearly a quarter in 2016, sending the stock plunging. Chipotle’s failure to recover from that decline cost executives their jobs, led to a dramatic slowdown in the chain’s growth and will lead to a completely new CEO at the Denver-based chain for the first time in its history.

It also took Chipotle’s valuation down to more reasonable levels. The stock plunged to well below $300 at one point. It’s trading at around $320 now.

Its valuation is now low enough that a buyer could theoretically pay enough to take the company private.

Sara Senatore, analyst with Bernstein Research, said in a note this week that Chipotle would make an attractive buyout candidate. Senatore called Chipotle a “reasonably attractive target.”

Senatore also mentioned other potential buyout targets, such as Habit, Del Frisco’s, Fogo de Chao, Chuy’s and Potbelly—we mentioned two of those among our list of potential targets last week.

The problem with Chipotle is price. It would be an expensive takeover target for any buyer, and it’s uncertain whether anybody out there would be willing to fork over the kind of cash and debt such a deal would require.

To be sure, buyers have clearly been willing to pay up for good acquisition targets this year. Earlier this year, Restaurant Brands International paid nearly 20 times earnings before interest, taxes, depreciation and amortization, or EBITDA, to buy Popeyes Louisiana Kitchen. It was one of the largest multiples paid for a take-private deal in restaurant industry history.

Shortly thereafter, the investment firm JAB Holding paid nearly 18 times EBITDA for Panera Bread.

By contrast, the average multiple paid for a restaurant acquisition this year has been 12.1 times EBITDA, Senatore said.

As a side note: Even that number demonstrates restaurant industry buyout inflation. In 2010, the average multiple paid was 6.3, according to Senatore.

It’s reasonable to suggest that a buyer would pay the same rate for Chipotle that Panera fetched, 18 times EBITDA. Yet, as Senatore mentioned, such a price would give shareholders only a small, 4% premium on the company’s stock price.

So a buyer would have to pay a lot more—probably in the $10 billion range or more, given the company’s market cap of about $9 billion.

Even with today’s inflated multiples, few buyers actually pay that much. Chipotle doesn’t fit the mold of the companies that Restaurant Brands (franchises with international development potential) or JAB (breakfast chains) seem to be targeting. And those are the two buyers paying otherworldly valuations for their desired targets right now.

A buyer would have to be willing to bet that Chipotle could capture some of its lost glory with new management and some operational changes and, of course, slowed development.

Not long ago, Chipotle was the best performing chain in the industry, able to pay off a new unit in 18 months with unit volumes among the highest in the limited-service space. A buyer could bank on recapturing those volumes and that otherworldly profitability.

At the same time, one could argue that Chipotle is at a new normal, and that its previous volumes were unsustainable for long, given how unusual they really were. Its current unit volumes of about $1.8 million are still strong, and still far above its biggest competitors, but still more normalized.

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