Chipotle (CMG): Spicy Stock or Soggy Burrito?

Chipotle Mexican Grill Inc (NYSE:CMG) has enjoyed a spot on our watchlist for months — in January, we noted that the stock “stands poised to benefit from several secular growth drivers, including millennial market share, automation/robotics, digitalization, and store expansion.” 

However, here’s a new wrinkle: the recent departure of Chairman and CEO Brian Niccol led to a significant drop in share price downfall. Can you guess when the announcement happened below? 

Chart courtesy TradingView

The reason for the drop? Niccol is seen as being responsible for many positive changes in recent years, leaving investors uncertain about the future of the company and stock. 

However, Chipotle is more than its CEO, and the rest of the leadership team seems likely to stay the course, maintaining a commitment to steady growth, accepting innovation where appropriate, and further store expansion.

Some analysts agree. On the Strong Buy side, Chris O'Cull of Stifel Nicolaus (a top 9% analyst) believes the company will maintain its “core focus.” Lauren Silberman of Deutsche Bank stated that the selloff was oversized and referenced the strength of the rest of the leadership team. Other analysts displayed some pessimism (see all analyst coverage here), but most of those sentiments were reflective of short-term prospects for the stock.

According to our due diligence checks, CMG’s fundamentals look good. It has a Zen Score (a quick overview of how a stock looks regarding the fundamentals) of 53, well above the industry average of 30. Specifically, the performance and financials look fantastic according to the basic numbers, although the valuation might leave something to be desired (which makes sense, given how some outlets said it was currently overpriced/overvalued). 

Yet perhaps not so overvalued now that there has been a slight dip in the stock price, however temporary. Forecasts now indicate that the average 12-month expected return is 15.21%, and the max forecast is 42.03%. Notably, the analyst consensus is Buy, with 12 Strong Buy ratings, 6 Buy ratings, and 9 Hold ratings. As of this writing, there are no Sell or Strong Sell ratings for CMG among the analysts we track, even in light of the news.

The Takeaway: While there are always reasons to be concerned with sudden leadership changes, it appears CMG remains solid and steady despite losing its CEO. Several analysts have noted that despite Brian Niccol’s departure, Chipotle is most likely to keep to its current course and maintain its core focus. The fundamental numbers have not changed.

However, given the news, this is still a stock you’ll want to keep an eye on.WallStreetZen Premium can help you stay on top of CMG and any other stocks you’d like with its additional information and unlimited watchlist.

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