Shares of Chipotle Mexican Grill (NYSE:CMG) soared on Thursday, rising some 7% on a strong first-quarter earnings report that crushed estimates.
Additionally, the stock price of the fast-food chain is about to get a lot cheaper as it prepares for a 50-to-one stock split at the end of Q2. The first stock split in the company’s history will give each shareholder an additional 49 shares for every share owned. At the current share price of about $3,100, a single share after the split will be worth about $62.
Of course, the actual price after the stock split will be based on the share price as of June 18, with Chipotle shares to begin trading at the new price on June 26. Among other things, the split will make this fast-growing stock more accessible to more investors.
Outperforming most of the Magnificent Seven
Chipotle has been one of the most consistent performers on the market over the past five or six years. Since 2018, it has had only one year in which it finished in the red, sinking 20% in 2022. Last year, the stock returned 65%, and this year, it is already up 39% year to date.
Over the past five years, Chipotle has posted an average annualized return of 34%, which is better than Apple, Amazon, Microsoft, Alphabet and Meta Platforms.
The company continued to grow in the first quarter as its revenue jumped 14% year over year to $2.7 billion. Comparable-restaurant sales climbed 7%, while the chain added 47 new restaurants in the quarter, including one with a drive-through Chipotlane. The chain had 5.4% more transactions and a 1.6% increase in the average check size.
Chipotle’s net income increased 23% to $359 million or $13.01 per share, smashing the consensus estimate of $11.68 per share.
The company was able to keep expenses down, as food, beverage and packaging costs were 28.8% of total revenue, a drop of roughly 40 basis points compared to the first quarter of 2023. The spread benefited from menu-price increases, slightly offset by inflation. Chipotle’s overall operating margin increased to 16.3% from 15.5% in the same quarter a year ago, while at the restaurant level, it rose 190 basis points to 27.5%.
“We had another outstanding quarter driven by our improvement in throughput and successful marketing initiatives, including Braised Beef Barbacoa and Chicken Al Pastor, which drove strong sales and transactions,” said Chairman and CEO Brian Niccol in the earnings report. “The results we are seeing from our focus on developing exceptional people, preparing delicious food and fast throughput gives me confidence that we can achieve our long-term target of more than doubling our business in North America and expanding internationally.”
A massive stock split is coming
Looking ahead, Chipotle expects to maintain its comparable-restaurant sales growth, targeting a full-year percentage-growth rate in the mid-to-high single-digit range. It also expects to have 285 to 315 new restaurants in 2024, with 80% of them having a drive-through Chipotlane.
Chipotle’s financials are good with improving margins and rising cash flows, manageable debt, and a solid current ratio, which gauges a company’s ability to pay short-term debt, of 1.65.
Analysts took a much more bullish view of Chipotle stock after the latest earnings report, as it received more than a dozen price-target raises on Thursday with an average price target of $3,200. That’s only up about 2.5% from the current price, but keep in mind that the stock has already gained 40% YTD.
Chipotle stock is not cheap by any stretch, either in terms of its $3,100+ share price or its valuation, trading at 66 times earnings. However, with the 50-to-one stock split coming pending shareholder approvals on June 6, it will be a lot more affordable with an entry price probably somewhere around $60 per share.
“This is the first stock split in Chipotle’s 30-year history, and we believe this will make our stock more accessible to employees as well as a broader range of investors,” said Chief Financial and Administrative Officer Jack Hartung. “This split comes at a time when our stock is experiencing an all-time high driven by record revenues, profits, and growth.”
However, Chipotle’s valuation is still high, so investors should keep an eye on that. Often, stock splits generate a lot of investor interest, so it could see a surge post-split. Then again, Chipotle has very high multiples, so investors might want to look for an opportunity to get it at a lower valuation.
