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OPINIONFinancing

What pandemic? Chipotle’s stock keeps surging

The stock closed Tuesday above $1,000 for the first time and then just kept going, says RB’s The Bottom Line.
Photograph courtesy of Chipotle Mexican Grill

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As far as Wall Street is concerned, Chipotle is one of the big winners coming out of the pandemic.

The company’s stock Tuesday closed above $1,000 per share for the first time ever, reaching yet another in a long string of all-time highs. It then continued to rise Wednesday: It was up just less than 2% through late-morning trading.

Chipotle is now one of only four restaurant companies whose valuation has increased this year, and one of only three whose valuation has more than recovered whatever it lost during the pandemic.

The company’s stock is up more than 20% for the year and 71% since the industry’s shares bottomed out in late March.

The performance is especially strong compared with everybody else. The median restaurant stock is down by a third this year. Only Wingstop, Domino’s and Papa John’s—three chains that have been all but untouched by the pandemic, two of which saw same-store sales up in the 30% range last month—have performed better this year.

Since Brian Niccol was named CEO in February 2018, the company’s stock has more than tripled, quickly recovering the substantial valuation it had lost in the previous two years and then blowing right past its previous highs—then continuing that improvement even as a pandemic hit.

(Read my colleague Peter Romeo’s piece about Brian Niccol here.)

Chipotle’s shares have been bolstered by the company’s confidence late last month. While the chain’s same-store sales fell steeply in late March, the company’s aggressive shift to digital has provided a tailwind.

One of Chipotle’s defining characteristics under Niccol has been its aggressive shift to digital sales, particularly delivery. Digital sales more than doubled last quarter and are now approaching 40% of the chain’s business.

Many investors likely expect it is performing just as well as many other fast-food chains in recent weeks as consumers have ventured out more frequently.

In addition, the company in April suggested that its consumers expect to eat out at the chain’s restaurants more often coming out of the shutdown.

“We believe our long-term opportunity to significantly expand [average unit volumes], margins and store base remains in place,” Niccol said, according to a transcript on financial services site Sentieo.

Executives noted that they expect to be in prime position to expand Chipotle’s store base, and at better terms.

“I would still think when there’s less competition out there, that we’re going to see relaxed rents,” CFO Jack Hartung said. “We do think we’ll be able to get more sites, higher quality sites, more Chipotlanes, and I would expect rents should be at least incrementally more attractive.”

Chipotle has a lot of cash on hand and is historically very profitable, particularly for a company-run outfit. Its sales have likely come back from the shutdown, and now it sees a future in which its own expansion will likely prove easier than it was just two months before. Now the stock is in quadruple digits.

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