A signage is seen in a Chipotle outlet in Manhattan, New York City
By Savyata Mishra
(Reuters) -Chipotle Mexican Grill’s stock breached the $3,000 mark for the first time on Wednesday and closed 3.5% higher after the burrito chain’s board approved a 50-for-1 stock split, hoping to entice investors wary of its lofty per-share price.
Shares of the California-based company have rallied to record levels over the past year, powered by strong earnings owing to a solid demand for burritos and rice bowls among its relatively wealthy customer base.
A stock split lowers the price of shares without affecting the company’s valuation, making them more affordable for individual investors.
Based on Wednesday’s closing price of $2,895, its highest close ever, the company’s stock would trade at around $58 after the split. Chipotle has around 27.4 million shares outstanding.
If the split is approved at the upcoming annual meeting on June 6, its shareholders will receive an additional 49 shares for each share held.
As of Tuesday’s close, Chipotle had the fourth-highest-per-share value on the S&P 500 index. Its market value was $76.71 billion.
The split, the first in its 30-year history, “will make our stock more accessible to employees as well as a broader range of investors,” said Chipotle’s Chief Financial and Administrative Officer Jack Hartung on Tuesday.
CEO Brian Niccol also announced a special one-time equity grant for all restaurant general managers as well as crew members with more than 20 years of service.
“They’re also trying to do what Walmart has done in the sense that they want to give employees more economic ownership,” said Thomas Hayes, chairman at hedge fund Great Hill Capital.
Retail giant Walmart undertook a 3-for-1 share split that went into effect beginning Feb. 26 and has given the employees the option of buying the stock through payroll deductions.
“Chipotle’s stock split should ease liquidity in the stock given how high the share price has risen over the past years. Otherwise, the economics of the business remain just as compelling,” said Jim Sanderson, an analyst with Northcoast Research.
The fast-casual Mexican chain went public in January 2006 at $22 per share.
Its forward price-to-earnings multiple (P/E), a common benchmark for valuing stocks, is 49.72, higher than industry peers including Starbucks and McDonald’s that have a P/E ratio of 20.89 and 22.24, respectively.
(Reporting by Savyata Mishra in Bengaluru, Additional reporting by Bansari Mayur Kamdar; Editing by Tasim Zahid and Krishna Chandra Eluri)
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