Bill Ackman Cuts Chipotle Stake Right Before Stock Drop: Did Billionaire See What The Market Couldn't?

Billionaire hedge fund manager Bill Ackman strategically reduced his stake in Chipotle Mexican Grill Inc. CMG just before the restaurant chain’s recent stock selloff and CEO departure.

Ackman's move comes at a critical juncture, suggesting his knowledge of Chipotle's business dynamics gave him an edge over the broader market.

What Happened: The restaurant chain, known for its burritos, is witnessing the worst quarter in more than four years.

Since July 1, Chipotle’s share price has declined by 17%, setting it on course for its worst quarter since the first quarter of 2020, when it fell 22%.

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Despite Chipotle reporting stronger-than-expected revenue and earnings last quarter, the market’s reaction to the results was negative, with the stock falling 1.9% on the day after as the company’s management chose to hold steady its annual guidance and signaled potential near-term pressures on margins.

On Aug. 13, the restaurant chain took a significant hit, plunging 7.5% — its worst single-day drop in over a year —following the announcement that Brian Niccol, the CEO credited with much of Chipotle’s recent success, would be leaving to take the helm at Starbucks Inc. SBUX. Chipotle’s Chief Operating Officer Scott Boatwright was named Interim CEO.

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Ackman Adjusts: According to the latest 13F filings, Ackman’s Pershing Square Capital Management, L.P. sold 8.38 million shares of Chipotle during the second quarter of 2024. That's a 23% reduction in his overall position compared to the end of the first quarter.

The shares were sold at an average price of $60.40, locking in substantial gains before the market downturn. Chipotle shares delivered a robust year-to-date performance of 37% through the end of June. It marked seven consecutive months of gains until April.

Ackman first invested in Chipotle back in 2016. He acquired a $234.8 million stake that represented 4.3% of his overall portfolio at the time. Since then, he steadily increased his position. This culminated in a $2.1 billion stake at the end of the first quarter 2024. Chipotle remained his largest holding until it was overtaken by Hilton Worldwide Holdings Inc. HLT.

Chipotle's weight in Pershing Square's portfolio decreased from 20.1% to 17.33% between the first two quarters of 2024.

The timing of this adjustment proved to be impeccable, as the restaurant chain’s stock has since experienced a notable decline.

Still, the average purchase price of all Chipotle shares owned by Pershing Square is $8.72. When compared to the current market price of $52, the return on investment has been nearly 500%.

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