After Losing Its CEO, Is Chipotle Still a Buy for Investors?

while Starbucks received a lot of positive press following the hiring of its new CEO, Brian Niccol, Chipotle Mexican Grill (CMG -2.78%) we just lost the person who helped guide us successfully for the past six years.

Let’s look at the potential effect on the company and whether the stock is still a buy.

The CEO arrives at Starbucks

Brian Niccol jumping ship to go from CEO of Chipotle to take the reins at Starbucks shocked the investment world, sending Starbucks shares soaring while Chipotle shares sank. Niccol helped make a turnaround at Chipotle following a spate of foodborne illnesses at the restaurant. He was also instrumental in promoting new technology to help increase worker efficiency, improve Chipotle’s supply chain, and help with restaurant staffing and traffic. He led the charge with Chipotle’s mobile ordering and loyalty program to keep more regular diners engaged and coming back.

The good thing is that all the technology improvements and strategies that Niccol implemented at Chipotle remain.

At the same time, not everything on Niccol’s watch was good. The restaurant’s uneven portion sizes were recently criticized by customers, and the company admitted that about 10 percent of its locations had switched customers. It will rebrand these restaurants, but is also expected to put short-term pressure on the company’s margins.

However, when a new CEO comes in, it could be a good marketing opportunity for the company to play up new standardized portion sizes to attract customers who may have been disenchanted with the brand. So it’s not like there aren’t opportunities for a new CEO to improve after taking over.

Chief Operating Officer Scott Boatwright will take over as interim CEO, and whether he will keep the job permanently is still up in the air. However, the job will undoubtedly be in high demand if the board decides to bring in outside candidates.

Image source: Getty Images.

A recipe for success

Regardless of who the CEO is right now, though, Chipotle has found a recipe for success, and the key is not to stray too far from what made it successful. It includes a small menu with relatively few ingredients, from which workers can make orders in an assembly-like fashion. This strategy helps both strong yield (quick orders) and solid gross margins as it gives the company size and buying power.

Chipotle, meanwhile, has found success luring shoppers through both limited-time specials that change quarterly and its loyalty program. None of this should change under a new CEO. The company should also continue its expansion in the US

Going beyond that, the next CEO could shake things up in two ways. One way is international expansion. Chipotle currently has a modest international presence, with locations in just four countries outside the US heading into 2024. Earlier this year, it entered a new market for the first time in 10 years when it signed an agreement with Alshaya Group to put a franchise. in Kuwait. It will also open a location in Dubai later this year. A new CEO could increase its international presence, as Niccol has not been very active in this area.

The other big move he can make is to add breakfast. Breakfast burritos, anyone? Adding a breakfast side of the day has been a tried and true winner in the quick service industry playbook for years and tends to add an immediate boost to sales. It’s something that will likely remain in the company’s back pocket should same-store sales ever begin to decline.

Is it time to buy the stock?

Following the recent stock selloff, Chipotle now trades at a forward price-to-earnings (P/E) of less than 40 times analysts’ 2025 estimates. While that’s not a bargain price, it’s a discount from where it was recently traded for one of the best performing restaurant chains out there.

Data on CMG PE ratio (forward 1y) by YCharts

Meanwhile, the company continues to have plenty of expansion opportunities ahead and plenty of leverage it can still pull to grow and increase shareholder value. While Niccol has been a very good CEO, I think the company’s future remains bright and I would take this opportunity to pick up some long-term stock. The stock remains a buy.