The surprise departure of Chipotle Mexican Grill Inc
What Happened: Chipotle announced Tuesday that Niccol will leave the company at the end of the month after he accepted the role of chairman and CEO of Starbucks. Chipotle shares have more than tripled over the past five years under Niccol's leadership.
Following the surprise management shakeup, several analysts weighed in on the move with overwhelmingly positive reactions for Starbucks and optimistic views for Chipotle moving forward.
Morgan Stanley Reacts: Morgan Stanley analyst Brian Harbour maintained an Overweight rating on Starbucks with a price target of $98. He called the move a "genuine surprise" and indicated that it will be viewed as an "unmitigated positive" for Starbucks.
"We have remained OW SBUX, despite challenges, on the view there was impetus for change, the stock was inexpensive, and much could be done with this formidable global brand - this will begin a new chapter in that story, and we remain OW on the basis that this is still true, and will have a new catalyst," Harbour said.
The Morgan Stanley analyst maintained his price target of $98, acknowledging that a turnaround is likely to take time given Starbucks' more complicated global business, licensed partners and challenges with retail operations and labor.
BofA Securities Reacts: BofA Securities analysts reiterated Buy on Starbucks with a price target of $112.
BofA noted that it saw "distinct parallels" between Starbucks and Chipotle when Niccol joined in 2018. As a result, the analyst firm believes Starbucks is set to benefit from Niccol's expertise and excellent track record of execution.
Although Chipotle's stock sold off on the news, BofA believes recent changes that have been implemented at Chipotle position the company well going forward as it navigates new leadership. BofA has a price target of $71 on Chipotle stock.
TD Cowen Reacts: TD Cowen analyst Andrew Charles reiterated Starbucks with a Buy rating and maintained a price target of $105 following conversations with investors.
Charles noted investors believe Niccol's ability to turnaround traffic trends at Starbucks is a matter of when, not if. The TD Cowen analyst said the bear case for Starbucks is now "extinguished" for the next six months at least.
"In our view, the key determinant of the stock's direction over the coming months will be dictated by Mr. Niccol's management changes & articulating the strategic objectives," Charles said.
The TD Cowen analyst also maintained a Buy rating on Chipotle as investors expressed greater concern following Niccol's departure, but also viewed the pullback as an attractive buying opportunity.
KeyBanc Capital Markets Reacts: KeyBanc analyst Eric Gonzalez called the shakeup an "undeniable victory" for Starbucks and a potentially significant loss for Chipotle. However, the analyst has a Sector Weight rating on Starbucks and an Overweight rating on Chipotle following Tuesday's stock price swings.
"We believe Mr. Niccol brings a wealth of knowledge to the table in the areas of menu innovation, operations, marketing, and technology. While the Company may be able to drive transactions with throughput improvements, we believe fixing Starbucks' affordability perception is the bigger near-term challenge and one that Mr. Niccol has not directly faced in the past," Gonzalez said.
Although KeyBanc is incrementally more positive on Starbucks following Niccol's appointment, the firm said it prefers to wait for the dust to settle and for Niccol to lay out his plans for a turnaround.
On the other end of the shakeup, KeyBanc believes Niccol left Chipotle in capable hands with a clear strategy that will drive growth for the foreseeable future. Gonzalez believes the management transition at Chipotle is not indicative of any sort of weakness in the company's business or growth prospects.
Truist Securities Reacts: Truist Securities analyst Jake Bartlett also believes Chipotle remains well-positioned despite the CEO departure.
"We view the surprise announcement of CMG's CEO [Brian Niccol] as an incremental negative for the stock, but not thesis changing (well positioned to growth-share near and long- term while expanding margins) and view the pullback in the stock as a buying opportunity," Bartlett said.
The Truist analyst has a Buy rating on Chipotle stock and a price target of $69 as he believes the CEO transition will not disrupt the significant momentum driving Chipotle's business. Chipotle needed Niccol in 2018, but the analyst suggested that the company does not need him now.
Wedbush Reacts: Wedbush analyst Nick Setyan upgraded Chipotle from Neutral to Outperform and raised the price target from $54 to $58 following the management shakeup.
The analyst believes Chipotle remains in "very good hands" with interim CEO Scott Boatwright and Jack Hartung, who recently announced his retirement as CFO, but agreed to stay with the company indefinitely following Niccol's departure. Wedbush credits Boatwright and Hartung with taking a big part in Chipotle's turnaround alongside Niccol.
Setyan sees Chipotle shares buoyed by same-store sales growth in the second half of the year and margin upside as expectations have been reset.
"The company is both in a good place and in good hands," the Wedbush analyst said.
SBUX, CMG Price Action: Starbucks shares closed Tuesday up approximately 25% while Chipotle shares fell about 7.5%. On Wednesday, Starbucks shares were down 1.84% at $94.14 and Chipotle shares were down 0.60% at $51.37 at the time of publication Wednesday, per Benzinga Pro.
