Shares of beleagured burrito chain Chipotle Mexican Grill (CMG) have been beaten up bad this year ... down 21% No, not good. Especially compared to the S&P 500 which is up 5%.
Cue Bill Ackman. The billionaire investor stepped in to stem the bleeding back in September. But Chipotle's earnings continue to disappoint. In the third quarter, the company cut its guidance, saying it would slow new store openings, cut operating costs and wrote down the assets of the distracting offshoot ShopHouse.
Hedgeye Restaurant analyst Howard Penney has been the most vocal bear on Chipotle since adding the company to his Best Ideas short list last November. Since Penney's call, Chipotle shares have fallen -38%. The selling isn't done. Penney says shares have considerable downside from here... sub-$300 here we come.
To help fend off pressure from Ackman, Chipotle lawyered up in late October. Earlier this week, Reuters reported that Ackman and Chipotle "have signed an agreement to engage in confidential discussions, a source familiar with the matter said, in a sign that the activist may be able to force change at the burrito chain without a costly and drawn-out proxy contest."
Here's Penney's take on the news:
"Based on news reports, it’s clear Bill Ackman is working very hard behind the scenes to shore up his investment in Chipotle. The reporters from Reuters have been actively reporting news flow on Pershing’s signing of the confidentiality agreement and I suspect that following the disastrous 3Q16 earnings call and the 10% decline in the stock, Ackman needed to urgently stop the bleeding.
The only real influence he can have in the immediate term is pushing for potential changes to the board. I suspect there is little he can do to change the trajectory of fiscal 2017 and there is still no clear plan to fix the business operationally."
The bleeding isn't over for Chipotle.
