OPINIONFinancing

Wall Street falls in love with Chipotle again

The burrito chain was the industry’s best stock in a generally good year, says RB’s The Bottom Line.
chipotle storefront
Photograph courtesy of Chipotle Mexican Grill

the bottom line

Wall Street likes Chipotle again.

The fast-casual burrito chain, which generated strong sales thanks to improved digital capabilities and more aggressive marketing, was the best performing restaurant stock in 2019, nearly doubling in value.

The Newport Beach, Calif.-based chain’s stock rose 94% in 2019, besting a pair of penny stocks and regaining its status as one of Wall Street’s favorite consumer companies.

Chipotle stock closed the year at $837 per share, up 180% over the past two years as it recovered all of the ground it lost following a series of food safety problems in 2015 and subsequent sales challenges. It then soared past its previous all-time highs to become one of the most valuable restaurant stocks.

Same-store sales have accelerated for seven straight quarters and hit double digits in both the second and third quarters of this year, including 11% in the third quarter ended Sept. 30.

2019 Best stocks

But Chipotle wasn’t the only formerly struggling company to regain investor favor in 2019.

Papa John’s was the second-best performing stock last year outside of penny stocks Rave Restaurant Group and Luby’s.

The Louisville, Ky.-based pizza chain’s stock rose 59% as new investor Starboard Value helped push changes, including the addition of new spokesman Shaquille O’Neal as a company director and the naming of Rob Lynch as its new CEO.

In general, restaurant stocks did well, rising more than 12% on average and with a weighted performance that largely kept pace with broader stock indices. The S&P 500 finished 2019 up 29% as corporate earnings improved and recessionary concerns largely vanished.

To be sure, stocks continued to reflect an industry loaded with haves and have-nots. And the stock average does not figure in poor performing companies that were taken private, such as Del Frisco’s Restaurant Group, or which filed for bankruptcy protection, like Kona Grill and iPic Entertainment.

The worst performing restaurant stock last year was Potbelly, where same-store sales have declined for 11 straight quarters and through multiple chief executives. That includes a 3% decline in the third quarter.

2019 Worst stocks

Another notable company was Del Taco, whose stock declined 22% amid weak sales and traffic, despite the spring introduction of a taco made with the plant based Beyond Meat product.

Still, for the most part the industry’s publicly traded companies regained favor after a difficult 2018 in which the average stock declined nearly 6%. Investors rewarded both limited service chains (average: 14%) and full-service companies (up 11%).

Traditional fast-food companies won favor among investors, notably Wendy’s, where the stock rose 43% as Wall Street bought into the company’s strategies for breakfast and international growth.

But Restaurant Brands International stock rose 22% as super-strong performance at Popeyes and Burger King helped investors ignore weak performance at Tim Hortons. McDonald’s stock rose 11% last year despite weak traffic and the shocking firing of CEO Steve Easterbrook.

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