Chipotle Throws a $750M Buyback at Wall Street to HIDE the Kitchen Dumpster Fire…

Qdoba: “We’re the discount burrito.”

Chipotle: “Hold my buyback.”

Chipotle just did what every overleveraged executive dreams of after a bad quarter: throw a fat buyback at the problem and hope Wall Street forgets about the dumpster fire in the kitchen. The board authorized another $500M in stock buybacks, tripling its current program to $750M. Translation: burritos are selling slower, but EPS math is about to look extra zesty.

(Source: Giphy) 

What’s interesting here, is that the burrito slinger usually waits until its Q3 earnings call to slip this kind of thing in while analysts are half-asleep. But with shares barely bouncing off a new 52-week low of $38.30 and down 36% YTD… management basically said, “screw it, BTFD”. Which is understandable, especially because the cheapness is relative. For instance, just six months ago, they torched $1B on buybacks at an average price north of $52. Now they get to reload at $39.

(Source: Benzinga) 

But, but, but… why the sudden panic tho? Well, as it turns out Q2 comps fell 4% YoY, same-store sales growth slowed, and the “premium burrito” narrative doesn’t hold up as well when inflation has families cutting back on eating out. Throw in a market that isn’t rewarding high-multiple food names, and suddenly Chipotle is less “cult stock” and more “35% drawdown that smells like Qdoba.” Options traders, though, are loving it. Call volume has doubled puts, with the September $40 call leading the charge. Options are dirt cheap too, with volatility ranked in the bottom quartile of the past year.

However, when it comes to savvy investors like you and I… and not degenerates, the buybacks should mean comfort food. They shrink the float, pump EPS, and buy management breathing room when the growth story starts to sound stale. The $500M bump is a signal that Chipotle’s board thinks its stock is undervalued… or at least too ugly to leave unattended heading into earnings season.

(Source: Giphy) 

But honestly, you don’t throw three-quarters of a billion at buybacks unless you’re trying to patch over the fact that your comps are falling and your once-invincible brand is looking mortal. The question isn’t whether Chipotle can buy itself a higher EPS this quarter… it’s whether anyone outside of hedge funds still wants to pay a 35x P/E for a company that can’t grow like it used to.

For now though, the market is taking its time with this one… but if same-store sales don’t pick up, Chipotle might find itself running out of excuses real soon. Place your bets accordingly. Until next time, friends… 

At the time of publishing, Stocks.News does not hold positions in companies mentioned in the article.