Wednesday, April 17, 2024
    HomeBusinessChipotle’s planned 50-to-1 split unites bulls and burrito lovers

    Chipotle’s planned 50-to-1 split unites bulls and burrito lovers

    (Bloomberg) — Chipotle Mexican Grill Inc.’s historic stock-split proposal spotlights the enormity of this year’s bull run by showing the lengths the fast-food chain must go to bring its shares within reach of those who enjoy its affordable burritos.

    Most Read from Bloomberg

    The 50-to-1 split announced on Tuesday will be one of the largest ever on the New York Stock Exchange if shareholders approve it at Chipotle’s annual meeting on June 6, the California-based company said. If it’s agreed to, the stock will begin trading on a post-split basis on June 26.

    While the move won’t change anything about the company except for its price per share, it still caused excitement: Chipotle shares rallied to fresh highs, building on a record-breaking run that has sent the stock up more than 26% this year.

    “Chipotle’s 50-for-1 stock split is unheard of,” said Howard Silverblatt, a Wall Street veteran with nearly a half century of experience as a senior index analyst at S&P Dow Jones Indices. “I’ve never seen anything of this size. It’s unusual.”

    A stock split simply takes a share and carves it up into multiple slices without changing the overall value or ownership pool. Companies pursue splits — or reverse splits, which do the opposite — largely for perception reasons. When a stock price is too high, it can turn off retail investors. When it’s is too low, it can make a company seem cheap in a tawdry way.

    Splits fell out of favor as buying fractional shares became more popular in recent times, Silverblatt explained. Last year, only four companies in the S&P 500 Index executed stock splits. But as stock markets have soared in 2024, there is more of an optics problem for companies with eye-popping share prices. While just two companies have officially split their stock this year, companies realize that it can create more demand for retail customers because the stock has a lower dollar value.

    “The big question now is, are stock splits coming back?” said Silverblatt.

    Sticker Shock

    Chipotle’s rationale for the split is to make its stock “more accessible” to employees and a broader range of investors. At nearly $2,900, one share of Chipotle is costlier than the average American homeowner’s monthly mortgage payment. A 50-for-1 split would bring Chipotle shares down to roughly $60 as of its Friday closing price, which is more like a takeout order.

    The two S&P 500 companies that split their stocks this year had similar explanations. Cooper Cos. Inc., which sells health-care products including contact lenses, enacted a 4-for-1 split in February. Discount-retail behemoth Walmart Inc. followed soon behind with a 3-for-1 split. Old Dominion Freight Line then announced a 2-for-1 split that is set to take place at the end of March.

    Beyond the goal of removing share-price sticker shock, the splits have the potential to expand the investor pool, therefore increasing liquidity and demand. Walmart hit a record after its split, even as major shareholders in the Walton Family sold $1.5 billion worth of stock.

    “If Chipotle is gonna split the stock, lets get it back down to a reasonable price,” said Thomas Martin, senior portfolio manager at Globalt Investments, who is overweight the stock. “Even though pricing has gone up with inflation, people are still willing to pay for the burritos! We like this stock and we’re riding this out.”

    Stunning Size

    Chipotle’s stock-split proposal drew particular attention because of its size.

    Other than a few larger splits attached to share offerings, Chipotle’s adjustment ties Berkshire Hathaway for the biggest, according to data compiled by Bloomberg. Berkshire’s 50-to-1 split of its B shares in 2010 was a part of its acquisition of railroad Burlington Northern Santa Fe.

    “I thought I misread it,” Ken Mahoney, president and chief executive at Mahoney Asset Management, said about seeing Chipotle’s announcement. “I was on Twitter when it first broke and people always kid around on Twitter,” referring to the platform X by its former name.

    Chipotle had little choice but to pursue a giant split if it wanted to make its shares accessible to the masses. It is the fourth-highest priced stock in the S&P 500, behind AutoZone Inc., Booking Holdings Inc. and NVR Inc.

    Who’s Next

    Some market participants expect Nvidia Corp. to be the next in line for a stock split.

    The market-leading artificial intelligence darling is up about 90% this year, building on a record run in 2023 and surging past the level at which it last announced a stock split in 2021. The chipmaker’s stock is off record highs hit in early March, but it still trades for more than $900 a share.

    Read more: Nvidia Looks Primed for a Stock Split Post $1 Trillion Rally (1)

    “It’s really hard to forecast stock splits,” said Mary Ann Bartels, chief investment strategist at Sanctuary Wealth. “But the higher the price, the more bang for your buck if you want to drive individual participation among retail investors in your shares.”

    —With assistance from Tom Contiliano.

    Most Read from Bloomberg Businessweek

    ©2024 Bloomberg L.P.



    Please enter your comment!
    Please enter your name here

    - Advertisment -
    Google search engine

    Most Popular

    Recent Comments