Bill Ackman (Trades, Portfolio) of Pershing Square Capital Management acquired a new holding in Chipotle Mexican Grill Inc. (CMG, Financial) on Aug. 24.
Ackman is an activist investor who has been plagued recently by both a scandal surrounding Valeant Pharmaceuticals (VRX, Financial) and a failed attempt at shorting Herbalife (HLF, Financial). This is his first major investment since the Valeant scandal unfolded. As an activist investor, Ackman takes a position in a company and pressures management for change. He has indicated that he may take an activist role in regard to Chipotle’s corporate governance, operations and capitalization.
Ackman purchased 2,882,463 shares in Chipotle for an average price of $403.75 per share. The transaction had an impact of 13.4% on the portfolio.
Chipotle Mexican Grill operates a chain of restaurants that serve burritos, tacos, burrito bowls and salads. The company was established in 1993 and is headquartered in Denver. In recent months, Chipotle has been suffering the consequences of an outbreak of norovirus at two of its stores in 2015.
Chipotle has a market cap of $12.1 billion with an enterprise value of $11.9 billion. It has a price-earnings (P/E) ratio of 61.3 with a forward P/E of 41.7. Its price-book (P/B) ratio is 8.1, and its price-sales (P/S) ratio is 3.14.
GuruFocus ranked Chipotle’s financial strength 9 of 10. Its Piotroski F-Score is 5, indicating a stable financial condition. Its Altman Z-Score is 15.7, placing it well into the safe zone. Chipotle’s Beneish M-Score is -3.06, indicating it is not manipulating its earnings. The company has no debt.
GuruFocus ranked the company’s profitability and growth 9 of 10. Chipotle’s operating margin is 8.2%, and its net margin is 5.24%. It has a return on equity (ROE) of 10.8% and a return on assets (ROA) of 8.3%, which are ranked above 57% and 73% of other companies in the industry.
The DCF Calculator gives the stock a fair value of $192.45. Chipotle is trading at $436.37.
Other guru shareholders include Frank Sands (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Manning & Napier Advisors Inc., Mario Cibelli (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio).
Pershing Square believes the popular fast casual chain is undervalued and has opportunity for growth. The 9.9% stake is valued at over $1 billion, making it one of Ackman’s top holdings. The announcement of his purchase caused Chipotle shares to soar over 5% in pre-market trading.
Disclosure: I do not own stock in any companies mentioned in the article.
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