by: Jayson Derrick, Benzinga Staff Writer
Shares of Chipotle Mexican Grill, Inc. CMG 14.34% soared by more than 14 percent as it appears investors are happy with the company's move to hire Taco Bell CEO Brian Niccol as its new CEO. Is the sell-side equally happy with the move?
- William Blair's Sharon Zackfia maintains a Market Perform rating on Chipotle's stock.
- Morgan Stanley's John Glass maintains an Equal-weight rating on Chipotle with an unchanged $312 price target.
- Credit Suisse's Jason West maintains a Neutral rating on Chipotle with an unchanged $275 price target.
- Tigress Financial's Ivan Feinseth says Niccol's hiring is a turning point for Chipotle.
Odd But Not Bad Choice
Niccol most recently served as CEO of Taco Bell, a division of Yum! Brands, Inc. YUM 0.06% and oversaw the launch of the naked egg taco and Doritos-flavored taco shells. Chipotle tapping Niccol to lead a company whose moto is food with integrity may seem like an "odd choice," according to Zackfia.
Nevertheless, Niccol boasts a "well-earned" reputation as a restaurant executive with notable experience in turnaround initiatives, the analyst said. Chipotle is likely to introduce new products, but at the end of the day, Zackfia said the company's earnings recovery remains in a transition period. A new CEO could inadvertently result in a shift in focus that could delay a path towards a sustainable recovery.
Naming Niccol as CEO is the "best possible outcome" Chipotle could hope for, Glass said in a note. He will bring to the table needed expertise in marketing, menu and digital savvy and perhaps most important, an understanding of value and brand differentiation.
Niccol "had a knack for making Taco Bell meaningful" to younger consumers through "creative and occasionally irreverent" marketing, the analyst said. This could transfer well to Chipotle although in a different form.
There is much work ahead to reinvigorate Chipotle's brand, but "at least now it can begin."
Some Concerns Ahead
Niccol's biggest accomplishment at Taco Bell was overseeing the highest cumulative same-store sales growth over the past three years among any major fast food brand, West said in a note. Taco Bell stayed clear of any notable negative press issues in recent years and also generates some of the highest restaurant margins in the entire industry.
There are some concerns ahead, including how Niccol's experience operating a franchised restaurant chain will translate to Chipotle's company-owned model. A focus on remodeling stores, marketing, technology initiatives, and focus on value could result in a boost in sales but could come at the expense of margins in the short and intermediate term, according to West.
After a three-month long search, this could be seen as a turning point for the stock, Feinseth said in his newsletter.
Feinseth argued after Chipotle's earnings report in early February that investors should avoid the stock, which was trading at $304 at that time. Since then, shares traded to around $250.
Niccol's first act of business is likely to consist of streamlining the supply chain and introducing a commissary approach to production, the analyst said. New products will likely be introduced, potentially a "delicious" breakfast burrito offering. After all, the executive invented the popular Nacho Fries and similar innovation could result in traffic gains.
Image credit: Chis Potter, Flickr
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