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OPINIONFinancing

On Wall Street, Chipotle’s recovery is nearly complete

The company’s stock hit $700 a share on Wednesday for the first time since 2015, says RB’s The Bottom Line.
Photograph courtesy of Chipotle Mexican Grill

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Chipotle Mexican Grill is, once again, one of the hottest stocks on Wall Street.

The fast-casual chain crossed a key milestone Wednesday when its stock price at one point hit $700 per share, a new 52-week high.

It was more like a 168-week high, actually. The company’s stock, which closed just under $700 at $697 a share, had not been over $700 since September 2015. (It was mostly flat Thursday.)

Most of you know what happened after that. There was a series of food safety incidents that hammered the company’s reputation, and then a frustratingly slow recovery that ultimately led to an overhaul of Chipotle management—including the hiring of Brian Niccol as CEO last year.

The $700 figure is symbolic, given that Chipotle had peaked at more than $750 a share in the summer of 2015, when the chain was one of the hottest momentum stocks on Wall Street. As Chipotle fell below $300 a share at points over the past three years, that $700 seemed a long way off.

It’s fair to say that Chipotle has regained its status as a momentum stock. Investors have been pouring money into the Newport, Calif.-based chain since Niccol was named CEO in February of last year.

In the months since, the company’s stock has risen 127%. The company’s enterprise valuation multiple is now past 28 times estimated 2019 earnings before interest, taxes, depreciation and amortization, or EBITDA, according to figures from financial services site Sentieo.

Another 7%, and Chipotle will reach its all-time high.

Chipotle has given investors plenty of reasons for their enthusiasm, even if it’s been a little too overheated.

Bill Ackman, CEO of Pershing Square Capital Management, whose investment in Chipotle in 2016 now stands as an important point in the company’s turnaround, wrote in a letter to his investors that the company under Niccol has overhauled its executive team and eliminated two layers of management to speed decision making.

“Chipotle’s strong performance in 2018 was driven by an organizational transformation and accelerated growth under a new world-class management team,” Ackman wrote.

Chipotle’s same-store sales rose 6.1% in the fourth quarter of last year, including 2% transaction growth. One reason: digital sales, and particularly delivery, thanks to new marketing.

Another thing exciting investors is the chain’s long-awaited loyalty program—Chipotle is, generally speaking, late to the loyalty game. Chipotle executives have high hopes for its program, which was launched earlier this month.

Chipotle stock is up more than 10% since the company announced that program.

The company has some distance to go before it recovers the unit volumes it lost in the aftermath of its food safety issues. But from a stock standpoint, Chipotle is almost all the way back.

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