Chipotle: Stock Split Doesn't Affect Valuation; We Love Prospects but Stock Price Gives Indigestion

Wide-moat Chipotle's board of directors has approved a 50-for-1 stock split, which we expect to be approved at the company's general meeting on June 6. The net effect is that each Chipotle shareholder would receive 49 extra shares for each share they hold today after the market closes on June 25, bringing the firm's total share count to roughly 1.4 billion, up from 27.4 million today. Chipotle's stock price rose nearly 7% on the news, which strikes us as myopic. To be fair, a cheaper per-share stock price could allow more retail investors to purchase the stock that might previously have been locked out of the market, but the firm's underlying cash flow prospects, competitive position, and valuation remain unchanged by the move. As a result, we expect no change to our $1,950 fair value estimate, and view shares as meaningfully overvalued.