Chipotle's Comeback (w/ Howard Penney) | Trade Ideas | Real Vision™

TL;DR

Hedgeye's Howard Penny is bullish on Chipotle, attributing the company's future success to a change in CEO and improvements in its operations, potential unit growth, recovery in same-store sales, and the leverage provided by increasing average unit volumes.

Transcript

Welcome to Real Vision's Trade Ideas. Today we're sitting down with Howard Penny of Hedgeye. Great to have you here. Thank you. So let's talk about a stock you're really well-known for, Chipotle. I want to give a little bit of a recap. You were bearish on Chipotle in 2015 and 2016. Then you flipped a switch and went bullish in late 2017. And you we... Read More

Key Insights

• 👶 Hedgeye was initially bearish on Chipotle due to inaccurate claims and supply chain issues, but the arrival of a new CEO has brought positive changes to the company.
• 🏪 The potential growth and recovery in same-store sales make Chipotle an attractive investment opportunity.
• 💗 Chipotle's leverage from increasing average unit volumes and a growing digital presence is expected to drive earnings and margin growth.
• 🙃 The stock price of Chipotle has room for further upside, potentially reaching $1,000 in the next two to three years.
• 🙈 The broader restaurant industry is seen as bearish, with the growth of delivery-focused companies penalizing operators who rely on in-person dining.

Questions & Answers

Q: Why did Hedgeye have a bearish outlook on Chipotle in the past?

Hedgeye was bearish due to inaccurate claims made by Chipotle and supply chain issues that led to customer illness, which the company failed to acknowledge properly.

Q: What were the key problems with Chipotle's previous CEO?

While the previous CEO was a visionary in creating Chipotle, he lacked the skill set to manage the company effectively. His departure and the arrival of Brian Niccol, a rock star in the restaurant industry, has brought positive changes.

Q: What are the potential earnings and growth prospects for Chipotle?

In the next couple of years, Chipotle has the potential to increase earnings from $10-12 to $25-30, driven by recovery in sales, margin leverage, and potential unit growth.

Q: How does the delivery-focused trend in the restaurant industry impact Chipotle?

The delivery-focused trend penalizes restaurant operators, but Chipotle's partnership with Postmates and its growing digital presence is currently seen as a positive, although delivery fees could become a headwind if they negatively impact margins.

Summary & Key Takeaways

• Hedgeye initially had a bearish outlook on Chipotle due to inaccurate claims made by the company and supply chain issues leading to customer illness.

• The CEO change to Brian Niccol has brought positive changes, making Chipotle one of the best-run companies in the restaurant industry.

• Potential growth and upside for Chipotle include increased average unit volumes and leverage for earnings growth, and the current stock price does not fully reflect the company's recovery.