Chipotle's stock sold off on CEO exit, but this analyst says it's time to buy

By Emily Bary

Wedbush upgraded Chipotle shares, saying the company 'remains in very good hands'

Wedbush analyst Nick Setyan said Chipotle Mexican Grill Inc. "remains in very good hands" despite a leadership shakeup that caught Wall Street by surprise.

Chipotle Chief Executive Brian Niccol plans to leave the company at the end of this month to take on the top job at Starbucks Corp. (SBUX), and his impending departure helped send shares of Chipotle (CMG) down 7.5% in Tuesday action.

See more: Chipotle's stock was S&P 500's worst performer as CEO's exit triggers 'rock star' jitters

Setyan sees better days ahead for the stock, however, and he upgraded it to outperform from neutral on Wednesday. Chipotle shares are up fractionally premarket.

From a leadership perspective, he noted that Chief Operating Officer Scott Boatwright will serve as interim CEO, after spending seven years in his current role. Jack Hartung, who planned to retire as chief financial officer next year, will indeed leave that role but now intends to stay with the company as president of strategy, finance and supply chain.

"We credit both leaders with CMG's turnaround in addition to Brian Niccol, and believe the company is both in a good place and in good hands," Setyan wrote.

In terms of business trends, he thinks that management has reset expectations after acknowledging some choppy July sales trends and various puts and takes for the remainder of the year, including the rolling off of price-increase benefits in October.

See also: Starbucks stock rallies on hopes of a turnaround under its new CEO - the head of Chipotle Mexican Grill

Still, Setyan is sticking with his expectation for 6% same-store-sales growth for the third quarter, similar to what Chipotle saw in June, and he sees some encouraging trends beyond that.

The company is approaching the fourth quarter and the start of 2025 with roughly flat pricing relative to a year before, "a mandate to ensure appropriate portion sizes to address the recent backlash, and with its most popular [limited-time offer] to boot," he wrote. (That offer is brisket.)

Setyan also noted some margin levers that are manifesting. For one, "avocado prices are on a steep decline since early July's peak," and growth in same-store sales brings incremental margin benefits.

He boosted his price target on Chipotle shares to $58 from $54.

Read: Starbucks customers complain the once-cozy coffee chain just wants to get them out the door

-Emily Bary

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08-14-24 0851ET

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