Analysts revise price targets on Chipotle shares after CEO’s stunning exit

It was red for Chipotle stock and green for Starbucks, just like their logo colors, when a man ditched spicy for caffeine.

Shares of Starbucks surged 24% on Aug. 13 when it announced it poached Chipotle CEO Brian Niccol. Niccol has increased the Mexican food chain’s share price by 800% in six years of his tenure. Unsurprisingly, Chipotle’s stock price lost 12% after the announcement.

Related: Starbucks CEO Is Unexpectedly Dumped; the analyst resets the stock target

Prior to joining Chipotle, Niccole worked for Taco Bell for over 12 years and served as its CEO from 2015 to 2018.

In 2011, Niccol joined Taco Bell as Chief Marketing and Innovation Officer, shortly after the chain’s seasoned beef was accused of not having enough meat. Although the lawsuit was dropped, Taco Bell’s apology was reversed, keeping the allegations in the public eye, according to The New York Times.

As CEO of Taco Bell, he revitalized the brand with social media initiatives like the Snapchat Taco Lens, repositioning it as a young lifestyle brand.

“If you let the brand get old, you’re going to die,” Niccole told the Los Angeles Times in 2015.

When Niccol left Taco Bell in 2018, he had transformed it with an innovative menu, creative marketing and convenient digital ordering systems. He changed the slogan from “Think outside the bun” to “Live más,” making Taco Bell frequently the best-performing subsidiary of Yum Brands, which also owns Pizza Hut and KFC.

Niccole introduced cars and a digital loyalty program to Chipotle, which had struggled with scandals before his arrival, including the 2015 E. coli outbreak, the 2017 norovirus outbreak and rodent sightings. The convenience of ordering food has greatly helped Chipotle regain market share, especially during the COVID-19 pandemic, when digital ordering took off.

“Right now, he’s almost considered the LeBron James or Tom Brady or Messi of the restaurant industry,” Bernstein analyst Danilo Gargiulo said, according to the Financial Times.

Chipotle has shown resilience amid macro pressure this year.

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Chipotle reported bright Q2 earnings amid market pressure

Chipotle Mexican Grill, Inc. (CMG) is a fast food restaurant chain specializing in bowls, tacos, and burritos with approximately 3,500 stores as of June 30, 2024.

The company has shown resilience amid macroeconomic pressure so far this year. Chipotle’s same-store sales rose 11.1% in the second quarter, beating estimates of 9.2%. Traffic to its restaurants increased by 8.7%.

Chipotle earned 34 cents per adjusted share in Q2, beating the 32 cents expected. Revenue of $2.97 billion also beat the forecast of $2.94 billion.

Meanwhile, its fast-food rival McDonald’s missed expectations on both EPS and revenue in the same quarter and reported declining sales.

Related: Chipotle’s CEO Finally Addresses Biggest Customer Complaint

“The second quarter was outstanding as successful brand marketing, including the return of Chicken Al Pastor, generated strong demand at our restaurants. Our focus and preparation around production paid off as we were able to meet the stronger trends of request,” Niccol said in a press release.

Chipotle launched Chicken Al Pastor in March 2023, only to remove it a few months later. It returned as a limited-time item in March 2024.

In the second quarter, Chipotle opened 52 new company-owned locations and one internationally licensed restaurant. The company maintained its guidance for mid- to high-single-digit same-store sales growth for the year and said it plans to open 285 to 315 new restaurants.

Here’s what Chipotle stock analysts said…

Analysts at Evercore ISI and Baird lowered Chipotle’s price target to $59 from $65 and $62 from $74, respectively, while maintaining an outperform rating.

Evercore expressed high regard for Chipotle’s “deep and talented” management, noting that the loss of one of its top executives prompted it to lower its price target. Still, they remain confident that Niccol has established a lasting culture at Chipotle.

Baird said they were slightly bearish on the stock following Niccol’s departure. Given his exceptional leadership and crucial role in the company’s success since becoming CEO in 2018, they believe his exit will likely hurt investor sentiment in the near term.

On the other hand, Wedbush upgraded Chipotle to outperform from neutral with a price target of $58, up from $54.

Wedbush highlights the contributions of Scott Boatwright, who served as COO and will step in as interim CEO, and Jack Hartung, despite recently announcing his retirement as CFO, has decided to stay with the company.

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Wedbush believes Chipotle is “in a good place and in good hands” and that the company can sustain market share gains in a more challenging macro context for restaurants.

Deutsche Bank sees Chipotle’s 12% drop as a buying opportunity. The firm has a buy rating with a $67 price target. The analyst believes the appointment of COO Scott Boatwright as interim CEO “is a positive testament to the internal talent pool and should allow for a smooth leadership transition,” according to a note.

Chipotle shares traded around $51 on August 14.

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