Investing

Chipotle Mexican Grill Stock Split

John Seetoo

Published: April 10, 2024 1:30 pm

On March 19, 2024, Chipotle Mexican Grill (NYSE: CMG) posted this announcement from PRNewswire on its website in caps: CHIPOTLE BOARD OF DIRECTORS APPROVES 50-FOR-1 STOCK SPLIT.

Chipotle, at $79.4 billion, the second largest restaurant chain in the US by market cap to #1 McDonald’s (NYSE: MCD), plans to execute its first ever forward stock split. By choosing to go 50–for-1, Chipotle’s will be one of the largest in NYSE history, matching a comparably sized one by Samsung Electronics (KSE: 005930.KS) on South Korean Stock Exchange in 2018.

While there are countless restaurant chains that have done well with quite a few managing to go public, what are some of the elements that have contributed to Chipotle’s success, and why do analysts believe that there is still future upside for them? 

Culinary Pedigree With Optimum Location and Timing

Source: Jason Kempin / Getty Images for Chipotle Mexican Grill

Chipotle Mexican Grill was founded by Steven Ells, a former student at The Culinary Institute of America. As a cook at Jeremiah Tower’s Stars restaurant in San Francisco, Ells saw the popularity of casual Mexican food in San Francisco’s Mission District and started his first Chipotle Mexican Grill in 1993 near the University of Denver. Staked by his parents with an $85,000 loan, Ells wisely saw a niche for budget priced, healthy and delicious food that would appeal to college students. He calculated that he could pay off the loan and make a profit within a year if he sold 107 burritos a day. Within a month, Ells was selling 1,000 burritos a day, and the Chipotle saga was about to begin.

The McDonald’s Connection and The Growth Infusion

By 1998, Chipotle had opened additional Colorado restaurants and expanded to Kansas and  Minnesota. McDonald’s took an initial minority interest that same year, expanding it by 2001 to become Chipotle’s largest investor. McDonald’s money and backing was a rocket fuel to Chipotle’s growth, spearheding its leap from 16 locations in 1998 to well over 500 by 2005. Chipotle’s emphasis on locally sourced and organic ingredients, when available, was an added marketing angle that would go on to help bolster the Chipotle Rewards Membership brand, as well as its reputation in casual dining as a “step above” fast food fare from burger chains like McDonald’s.  

Flying Solo

Source: Joe Raedle / Getty Images News via Getty Images

By 2006, Chipotle issued its IPO and later that same year, McDonald’s divested itself of Chipotle and other non-core assets. Its cumulative $360 million investment allowed McDonald to walk away with $1.5 billion. 

Chipotle would continue to grow, and in 2017, Ells finally decided to step down as CEO and made it official in 2018. Ex-Taco Bell head Brian Niccol stepped into the CEO role. Niccol would implement a number of changes, including relocation of offices and closing of underperforming outlets. Ells would go on to break all remaining ties with Chipotle and its board by 2020. 

Last year, Chipotle announced it would expand to 7,000 locations and hire 15,000 workers. The Wall Street Journal reported that 3,800 of those locations were expected to be in smaller cities, in competition with Applebee’s (Dine Brands – NYSE: DIN)  and McDonald’s. 

Justifications for Chipotle to Announce The Split

Source: Landscape and nature photographer based in Upstate, New York / iStock Editorial via Getty Images

At the time of this writing, Chipotle stock is at $2,895.58 per share, a hefty sum for any individual investor. The company stock has never had a split before in its history. There are a number of reasons why this now might be the opportune time:

• Shares are up 1,210 points from where they were a year ago.
• Since Chipotle’s 2006 IPO, the stock has appreciated roughly 13,000%.
• Chipotle’s drive through Chipotlanes for digital orders have given revenues and earnings a hefty boost. 
• Chipotle has increased its Rewards membership to over 36 million members. 
• Chipotle’s 2023 fiscal year end reported $1.23 billion in net income, equating to $44.34 per share. This was up from $889.1 million in 2022. 2023’s $9.87 billion in total revenues were up 14.5% over 2022.
• The expansion of more Chipotle outlets shows that management is eager to continue on a growth track in underserved areas, where their odds of success are enhanced.
• A 50-for-1 split would reduce share price to $57.91 per share, unquestionably increasing accessibility for individual investors.

The Last Hurdle

Source: miniseries / E+ via Getty Images

While Chipotle’s board has voted for the stock split, a shareholder approval vote is scheduled on June 6th for final ratification.  

Assuming the vote is affirmative, shareholders of record as of June 18 each get an extra 49 shares, which will commence trading post-split on June 26th.