Chipotle Mexican Grill Inc. (CMG) recently announced the approval of a new stock repurchase program of $100 million of its common stock. This share buyback, to be conducted through the first quarter of 2013, upholds the company’s trend of returning wealth to its shareholders from time to time.
Chipotle also announced that $25 million of the authorized repurchases will be conducted through a privately negotiated accelerated share repurchase transaction or ASR, with Morgan Stanley. The remaining $75 million will be available for Chipotle’s existing open–market repurchase agreement.
This latest authorization is in addition to the existing $100 million buyback plan announced on October 18, 2012. The company has already successfully repurchased shares worth $40 million under the authorization in October.
Chipotle ended the quarter with cash and cash equivalents of $421.1 million and shareholders’ equity of $1,307.6 million. Its healthy balance sheet position and positive free cash flow support the buyback program. Over the past four years, Chipotle bought back a total of $388 million of stock at an overall average share price of $117.
One of Chipotle’s competitors, McDonald’s Corporation (MCD), has also been consistently enhancing shareholders’ returns. In the third quarter of 2012, McDonald’s returned $1.3 billion to its shareholders through share repurchases and dividend payments. In 2012, the company expects to return $5.5 billion through share repurchases and dividend payment to shareholders.
Another peer, Yum! Brands Inc. (YUM), also recently authorized additional repurchase of up to 1 billion of its common stock, through May 31, 2014.
The increase in share buyback authorization reflects the company’s confidence in its fundamentals. At the same time, the share buyback will help the company reduce the share count, thereby increasing earnings per share and return on equity.
Apart from bolstering shareholders’ value, this strategic move will also lift the relatively undervalued share price. Chipotle’s shares are trading at $274.34 per share as on November 23, 2012, which is way behind its 52-week high price of $442.40. In such scenario, the share buyback will likely drive the stock price.
Chipotle currently carries a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We are maintaining our long-term ‘Outperform’ recommendation on the stock.
CHIPOTLE MEXICN (CMG): Free Stock Analysis Report
MCDONALDS CORP (MCD): Free Stock Analysis Report
YUM! BRANDS INC (YUM): Free Stock Analysis Report
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