Ackman's Pershing Square takes new position in Chipotle

Ackman's Pershing Square takes new position in Chipotle

The share price jumped more than 5 percent on news that Ackman was now involved. 12 experts consider that the stocks earnings and the quoted price is in harmony, hence, they give it a Hold rating.

Mr. Ackman's Pershing Square Capital Management LP has bought 9.9% stake, worth almost $1.2 billion as of Tuesday's closing price. According to reports, the Pershing Square CEO purchased 2.88 million shares, which account for 9.9 percent of the struggling restaurant's available shares.

In a public filing, Pershing described Chipotle as "undervalued" and "an attractive investment". Ackman declined to comment. Or Chipotle could find itself on an entirely different - albeit very unlikely - path, like, say, getting repurchased by McDonald's (MCD).

Shares of Chipotle have struggled since a series of foodborne-illness outbreaks at the end of previous year caused its sales to fall sharply. The company has also revamped its food-safety regulations as an attempt to prevent any potential food-borne illness.

Those issues scared customers away in droves. However, according to analysts at Morgan Stanley, the recovery could further take years, after their survey revealed that almost 25% of the restaurant retailer's customers have stopped going or aren't going as frequently.

Denver-based Chipotle has invested heavily to try to draw back customers, increasing food safety measures and offering free burritos and other menu items such as guacamole and chips. Chipotle pledged at the time to review its compensation programs.

But it could take several quarters for the true impact of these promotions to be seen.

The company's revenue has fallen for three straight quarters.

Tybourne Capital Management Hk Ltd added new position in Chipotle Mexican Grill during the most recent quarter end. Here's why we're not buying the hype from today's news... Some of those Chipotle shares he bought just yesterday.

Ackman and Pershing Square also are reeling from high-profile, wrong-way bets on Valeant Pharma (VRX) and Herbalife (HLF).

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What pray tell might Ackman have in mind for Chipotle?

In a note on Wednesday, Morgan Stanley equity analyst John Glass and his team wrote about five changes Pershing Square, and Bill Ackman, could make at the company. He could bring in a whole new team to overhaul operations in the front and back of the house. In what should be very obvious, improvements in corporate governance and a greater focus on the turnaround efforts will be in focus. He could also limit expansion, including Chipotle's plan to debut a burger chain this fall called Tasty Made.

Should you endorse the billion dollar move and buy Chipotle stock now? Moreover, McDonald's has the resources to clear the lanes for Chipotle's worldwide expansion and make it easier to franchise Chipotle's restaurants, he wrote. That's a message we've been telling Money Morning readers all year. The entire restaurant industry has entered a recession, as consumers shift dollars to lower-priced grocery stores.

"No one can disagree that Steve is visionary, but it doesn't mean he's right for the job going forward", said Hedgeye Risk Management analyst Howard Penney. It will be then, according to my thesis and probably Ackman's, too, that investors are likely to begin seeing sustainable grow in its share price.



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