Will Chipotle be a Buy, Sell or Hold in 2025?

In August Chipotle Mexican Grill (KMG 5.06%) announced that its Chairman and CEO Brian Niccol is leaving the restaurant chain to take a similar position at Starbucks. His six-year tenure has been generous for shareholders, with returns of around 800%.

Whenever a successful CEO leaves a company, shareholders should review the CEO’s succession, recent financial performance and long-term goals to understand what to do with their investment.

Chipotle CEO succession

Following the departure of Chipotle’s CEO, the board of directors appointed chief operating officer (COO) Scott Boatwright as interim CEO. Boatwright joined the company in 2017 and has been instrumental in the company’s success, including being instrumental in introducing new technology to restaurants.

In addition, Chipotle has accelerated the appointment of its Chief Financial Officer (CFO) Adam Reimer, another Chipotle veteran who has been with the company for 15 years in various financial roles.

Former CFO Jack Hartung, who previously announced he was suspending his retirement, is now staying on to support the transition.

Given these appointments, Chipotle is prioritizing internal promotions with its new leadership. While the debate between external hiring and internal promotion is unique to each company, some evidence points to a cultural benefit for the latter. A survey of 1,000 American workers by Joblist magazine found that 56% believe internal promotions improve morale and 71% believe they are better suited to scale their business.

Scaling remains a focus for Chipotle, with new CEO Scott Boatwright reaffirming a goal of expanding to 7,000 restaurants in North America and expanding its international presence when he was named to the role. For reference, Chipotle owned and operated 3,615 locations at the end of its last reported quarter.

Here are Chipotle’s latest financial results.

Chipotle recently reported third-quarter 2024 results that delivered positive revenue and earnings growth. In particular, the company’s revenue amounted to $2.8 billion and net profit amounted to $387.4 million, which corresponds to annual growth of 13% and 23.7%, respectively.

CMG revenue data (quarterly) from YCharts.

Driving this growth was 294 new company-owned locations since the third quarter of 2023, bringing the total to 3,615, representing nearly 9% year-over-year growth. In addition, during this time, Chipotle, for the first time for the company, opened two centers with an international license.

Chipotle is also growing organically, resulting in higher comparable restaurant sales, a key metric for restaurant stocks that compares the period-to-period change in total revenue for establishments operating for at least 13 full calendar months. The company’s comparable restaurant sales rose 6% in the quarter, driven in part by a 3.3% increase in transactions and a 2.7% increase in average check. For comparison, fast-casual competitor Wing stopper reported domestic same-store sales growth of 7.3% over the same period.

In terms of financial position, Chipotle has a strong balance sheet with no debt and $2.3 billion in cash, restricted cash and investments. The abundance of cash has given management the confidence to buy back its shares, a strategy that increases shareholder ownership by reducing the number of shares outstanding. In the most recent quarter, Chipotle spent $488.1 million on share repurchases, reducing its share count by 0.8% year over year. The company also has $1.1 billion remaining under its ongoing buyback program.

What’s next for Chipotle?

As mentioned, Chipotle management believes it can nearly double its current number of stores in North America from 3,615 to 7,000 locations and expand internationally, where it currently has very little presence. Expansion will take time; however, management plans to open between 315 and 345 new company-operated restaurants in 2025.

In addition, the company expects to increase average sales from the current annual level of $3.2 million to more than $4 million while increasing profits at the restaurant level.

If the company can achieve these goals, its annual revenue could exceed $28 billion annually, up 162% from its last 12-month results of $10.7 billion.

Should you buy Chipotle stock?

It will take time to effectively evaluate Chipotle’s new management, but by comparing the company’s valuation to historical levels, one can see whether the stock is trading at fair value.

The stock has consistently traded at a high price, with a five-year median price-to-earnings ratio of 63.9, discouraging value investors. However, the company appears to be trading at a slight discount, last trading at 54.6 times earnings.

In the short term, it is critical for management to earn the trust of shareholders by achieving profit and expansion goals. However, for long-term investors, this could be the perfect time to invest in Chipotle. Despite current management uncertainty, the company’s strong balance sheet positions it well for further growth.