Morgan Stanley On Chipotle: 'No Quick Spreadsheet Math To Create Shareholder Value'

After market close on September 6, Pershing Square Holdings Ltd PSH disclosed that it owned a 9.9 percent stake in Chipotle Mexican Grill, Inc. CMG.

Morgan Stanley’s John Glass maintains an Equal-Weight rating on Chipotle, with a price target of $405.

Pershing Square also revealed plans to enter into discussions with Chipotle’s management, board and investors regarding the latter company’s board composition, governance, cost structure, operations and other strategic plans.

No Quick Fix

Glass believes while there does not appear to be any quick fix for Chipotle, “the presence of a large and vocal investor may provide mgmt more incentive to hasten their turnaround efforts, which appear to have stalled, and could cause the shorts to cover, at least for now.”

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The analyst expects Pershing Square to enter into discussions regarding an expansion of the board, modifications in the compensation schemes and creating a better alignment, in general, between performance and compensation.

Creating Shareholder Value

Glass also expects discussion regarding management skill sets, while mentioning, “The know-how to lead CMG into the future from here is likely a different skill set than what has been required for success to date as the business transitions into a more mature phase. Adding expertise in marketing, cost control and IT all make sense.”

In addition, there is likely to be a greater focus on margins, while curbing new unit expansion to protect returns and increase free cash flow.

In the pre-market hours on Wednesday, Chipotle was up over 5 percent, seen at $436.06.

Full ratings data available on Benzinga Pro.