Chipotle Mexican Grill (NYSE: CMG) is witnessing a remarkable surge in its stock value, reaching unprecedented highs despite facing a recent controversy over portion control. The stock was trading at $3,256.55 on Thursday morning, reflecting a 2.7% increase, and reached an intraday peak of $3,293.53, surpassing its previous high of $3,260.00 set on May 10. The current record close is $3,239.23, also achieved on May 10. So far this year, Chipotle’s stock has soared by 42%, significantly outperforming the S&P 500’s approximately 14% rise.
The controversy began earlier this month when the New York Times published a report detailing a social media trend where customers document portion sizes at Chipotle by filming their experiences in the line. Some customers have even taken to walking out of the restaurant if they find the portions unsatisfactory. This trend has sparked discussions and raised questions about the consistency of portion sizes at Chipotle locations.
However, Chipotle has strongly denied any changes in portion sizes. Laurie Schalow, Chipotle’s Chief Corporate Affairs and Food Safety Officer, addressed the issue in a statement to Barron’s, saying, “There have been no changes in our portion sizes, and we have reinforced proper portioning with our employees.” Schalow’s statement aims to reassure both customers and investors that the company remains committed to maintaining its portion sizes and quality.
Despite the portion-control controversy, investor confidence in Chipotle remains robust. Wall Street analysts have largely maintained their bullish stance on the stock. William Blair analyst Sharon Zackfia, who rates Chipotle stock as Outperform, acknowledged that social media issues are now a routine part of the business landscape for restaurants. Zackfia commented, “The obvious concern would be if it penalized traffic to a material degree over a longer period of time. To some extent, social-media hype/concern is just part of the background now in the restaurant arena, and we don’t believe this will prove to have any impact on the company’s longer-term growth potential.”
Analysts at TD Cowen, led by Andrew Charles, share a similarly optimistic view. On Thursday, they raised their price target for Chipotle stock from $3,500 to $3,600 and maintained a Buy rating. Their confidence is bolstered by proprietary survey data indicating that Chipotle’s value perceptions are outperforming those of its fast-casual peers by a growing margin. TD Cowen’s report stated, “Our confidence in sustained traffic momentum is further aided by proprietary survey data that suggests Chipotle’s value perceptions are outperforming the fast casual peer group at a widening clip.”
In addition to its strong market performance, Chipotle has a significant event on the horizon with a 50-for-1 stock split. This move is generally seen as a strategy to make the stock more accessible to a broader range of investors, potentially boosting its liquidity and market appeal. Furthermore, in April, Chipotle topped estimates for first-quarter earnings and sales, reinforcing investor confidence in the company’s financial health and growth prospects.
Chipotle’s recent financial performance has been impressive. In its latest quarterly earnings report, the company reported a significant increase in earnings per share (EPS), growing from $0.21 in 2023 to $0.63 in the most recent quarter, marking a 200% growth over the year. Despite analysts projecting single-digit growth in EPS for the next 12 months, the company’s past performance suggests that these projections might be conservative.
Looking at the broader market, trends in the Consumer Discretionary Select Sector SPDR Fund (NYSEARCA: XLY) and the Consumer Staples Select Sector SPDR Fund (NYSEARCA: XLP) show why Chipotle stock is poised for continued success. Over the past 12 months, Chipotle has outperformed both sectors by substantial margins, reflecting its strong market position and investor confidence.
Additionally, Chipotle’s management has been actively enhancing shareholder value through strategic actions such as share buybacks. Recent results show up to 15% return on invested capital (ROIC) rates and a net operating cash flow of $4.2 billion. These figures allowed management to buy back as many as 18 million shares in the open market, totaling $1.1 billion. Share buybacks can significantly boost investor returns over time, and Chipotle’s management appears to be effectively leveraging this strategy.
Overall, despite the social media-driven portion-control controversy, Chipotle’s strong financial performance, strategic initiatives, and positive analyst sentiment have propelled its stock to new heights. Investors and analysts alike remain optimistic about the company’s long-term growth potential. As Chipotle continues to navigate the challenges and opportunities of the current market environment, its commitment to quality, value, and shareholder returns positions it well for sustained success.