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Chipotle shares surge as turnaround plan takes hold

Stock MarketsFeb 07, 2019 01:00PM ET
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© Reuters. FILE PHOTO: The logo of Chipotle Mexican Grill is seen at the Chipotle Next Kitchen in Manhattan

(Reuters) - Chipotle Mexican Grill (NYSE:CMG) Inc's shares rose as much as 15 percent on Thursday as Chief Executive Officer Brian Niccol's mobile ordering options and promotion strategies introduced last year gave investors confidence that the burrito chain would pull back customers it lost to a food safety scandal in 2015.

The company beat comparable-restaurant sales estimates by the biggest margin in nearly two years on Wednesday, driven by Niccol's decision to focus on food delivery and partner with services Doordash and Postmates.

Niccol, the former head of Taco bell where he introduced mobile ordering, also gave a marketing blitz to Chipotle to highlight the freshness of ingredients used in its tacos and burritos.

Wall Street was convinced that Chipotle's December quarter was not a just a flash in the pan and more of a sign of things to come, as it comes out of the shadow of food safety scares that plagued it over three years ago.

"Chipotle's fourth-quarter update offered the clearest evidence to date that it has corrected organizational issues that led to underwhelming customer experience the past several years," Morningstar analyst R.J. Hottovy said.

At least 13 analysts raised their price target on the stock to as high as $650, a level Chipotle's shares have not seen since 2015 when a raft of food safety lapses wreaked havoc on the company's reputation and stock price.

Chipotle shares were last up 13.8 percent at $598.62, touching a three-year high.

The company's traffic growth of 2 percent is among the best in the restaurant industry, with acceleration expected throughout 2019, Bernstein analyst Sara Senatore said.

The California-based company is also working to freshen up its menu with quesadillas and Mexican chocolate milkshakes to incentivise customers who are tired of burritos and tacos.

"To those who argue/worry that those are specific, non-repeatable promotions, we would argue that there are plenty of ideas still to come and that the convenience and speed that digital & delivery offer has created new, incremental occasions," Morgan Stanley (NYSE:MS) analyst John Glass said.

Chipotle shares surge as turnaround plan takes hold

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