Chipotle Mexican Grill (CMG) has given long-term investors a lot to cheer about. Over the past 15 years, Chipotle stock has averaged an annual return of 28.9%, easily outpacing the S&P 500's 15.7% gain. And the burrito chain's latest announcement could encourage a new generation of people to look towards CMG.
After the close on Tuesday, Chipotle said its board of directors approved a massive 50-for-1 stock split. Pending shareholder approval, the split will take effect after the market closes on Tuesday, June 25, and CMG shares will begin trading after the split on Wednesday, June 26.
This is CMG's first stock split and one of the largest in the history of the New York Stock Exchange (NYSE). The split “will make our stock more accessible to employees as well as a broader range of investors,” Jack Hartung, Chipotle's chief financial officer, said in Press release. “This split comes at a time when our shares are experiencing an all-time high driven by record revenue, earnings and growth.”
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In fact, in his most recent earnings report, Chipotle revealed 14.3% year-over-year revenue growth in 2023, to a record $9.9 billion. Earnings rose 36.9% to $44.86 per share. For fiscal 2024, analysts expect revenue to increase 13.8% and earnings per share to increase 19%.
What does Chipotle's stock split mean?
As for Chipotle's stock split, it won't change anything about the company's fundamentals or market valuation. Rather, a stock split is similar to making changes. In the case of CMG, it will be equivalent to dividing a $50 bill into 50 $1 bills.
At current levels, a 50-for-1 stock split will take shares from about $3,000 each to just under $60. This should make it much more attractive to retail investors, as well as Chipotle employees who participate in the company's program. stock purchase planwho can't buy CMG stock at its four-figure price.
Walmart (WMT) recently experienced a similar stock split. The retailer cited the importance of keeping its “share price in a range where purchasing whole shares, rather than fractions, was accessible to all of our associates” as the reason behind its 3-for-1 stock split.
Wall Street Says Chipotle Stock Still a Buy
Following the news, Deutsche Bank analyst Laura Silberman reiterated its Buy rating on Chipotle stock. “CMG has been among the best-performing restaurant stocks and we expect fundamental strength to continue to drive outperformance,” Silberman writes in a note to clients.
The analyst adds that she has great conviction in Chipotle's short- and long-term growth prospects. She believes that “a premium multiple is justified, pointing out that there is a dearth of value for a high-quality US company with a clean balance sheet, strong fundamentals and potential upside to the numbers.”
Silberman is not alone in her bullish outlook on consumer discretionary stocks. Of the 32 analysts covering Chipotle stock followed by S&P Global Market Intelligence, 20 say it is a Strong Buy, two have it as a Buy, nine rate it as a Hold and one has it as a Strong Sell. This works with a consensus Buy rating and high conviction.
