08. Chipotle Mexican Grill, Inc. (NYSE:CMG)
Upside Potential: 10%
As of June 13, TD Cowen has raised its price target for Chipotle Mexican Grill, Inc. (NYSE:CMG), a leader in the fast-casual dining industry, from $3,500 to $3,600, signaling a potential upside of 10%. This adjustment reflects TD Cowen’s optimistic view on Chipotle Mexican Grill, Inc. (NYSE:CMG) future performance and growth prospects, driven by several key factors. Firstly, Chipotle Mexican Grill, Inc. (NYSE:CMG) has delivered strong financial results, marked by significant increases in both revenue and profit. The introduction of innovative menu items has resonated well with customers, driving higher foot traffic and sales volumes. Furthermore, Chipotle Mexican Grill, Inc. (NYSE:CMG) strategic investments in digital platforms and delivery services have expanded its market reach and enhanced convenience for consumers.
Operational enhancements in efficiency and supply chain management have also played a pivotal role in boosting profit margins. Chipotle Mexican Grill, Inc. (NYSE:CMG) well-established brand strength and loyal customer base contribute significantly to its competitive position and potential for growth. TD Cowen’s decision to raise the price target underscores their confidence in Chipotle Mexican Grill, Inc. (NYSE:CMG) ability to capitalize on these strengths amidst a favorable economic environment. This strategic alignment positions Chipotle to sustain its momentum and expand its business in the years ahead, reaffirming TD Cowen’s positive outlook on the company’s trajectory.
Rowan Street Capital stated the following regarding Chipotle Mexican Grill, Inc. (NYSE:CMG) in its first quarter 2024 investor letter:
“The best investment ideas are simple. We have previously written about Chipotle Mexican Grill, Inc. (NYSE:CMG). It turned out that this was our best investment idea since starting the fund. The stock is up 10x since we first invested at the end of 2017 (~47% annualized). Sounds absolutely incredible, except that your managers sold CMG back in 2018 (thinking that the stock had gotten ahead of itself), and proudly booked an 85% profit in 6 months, patting ourselves in the back. Interestingly, when we wrote about this in our 2019 letter, describing our big mistake to sell, the stock still went up +270% since that letter, delivering an impressive 30% annual return. This is an incredibly important point! You do not get many Chipotles in your investing career. Companies like these are super rare and the opportunity to buy them at an attractive price (which we got in 2017) is even rarer. Booking a quick profit, paying the capital gains tax and thinking that you will find another CMG to invest your proceeds into is usually delusional.
Along with our personal investment case of CMG, let us compare that to the experience that Bill Ackman had with the same investment. He is a famous hedge fund manager that we greatly admire, who has achieved an incredible track record in the past 20 years running Pershing Square. Bill Ackman has owned the restaurant stock since the third quarter of 2016 at an initial cost basis of about $411 per share (our cost basis was $289). Originally, Mr. Ackman bought 2.88 million shares. He was wise to hold on to CMG stock and it still is the top position in his fund (18% weight). But, if you follow his 13F filings, which are the public filings disclosing large investment manager’s holdings of publicly traded securities, he kept trimming his position as the stock went up. We calculated that if he just sat on his original 2.88 million shares and didn’t sell a share, his position would be worth $8.8 billion today. This would represent ~50% of his entire firms’ assets under management (AUM). But he only has $1.8 billion invested in CMG as of Q1 2024. As Charlie Munger said: ““The first rule of compounding is to never interrupt it unnecessarily.”…” (Click here to read the full text)
