Ackman's Stake In Chipotle Meaningless In The Absence Of Sales Recovery

Activist investor Pershing Square [headed by Bill Ackman] has taken a stake in Chipotle Mexican Grill, Inc. CMG. While this move may trigger positive investor sentiment in the near term, it does not create any “meaningful incremental shareholder value” in the absence of a sales recovery, Baird’s David E. Tarantino mentioned in a report.

Analyst Tarantino maintained a Neutral rating on Chipotle, saying that the risk/reward on the company seemed “fairly balanced.” He raised the price target from $435 to $450.

Pershing Square Takes A Stake

Pershing Square Capital Management has purchased a 9.9 percent stake in Chipotle. According to an SEC filing, Pershing Square plans to discuss a range of topics with Chipotle management and board, including corporate governance as well as operating and financial strategies. Chipotle’s shares gained 6 percent after-hours following the news.

No Expected Value Add

“Pershing Square's stake could spur optimism that activism could lead the company to pursue certain operating or financial strategies that could help to drive incremental value for shareholders. However, with CMG already trading at fairly lofty valuation metrics, we struggle to see how the typical activist-driven financial strategies would add much value in the absence of a sales recovery,” Tarantino wrote.

The analyst added, however, that the presence of an activist investor had lowered the downside risk in the shares in the near run.

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