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Oct 27, 2016

S3 BLACKLIGHT: Chipotle Shorts Continue their Fiesta as Ackman Builds $1 bn Position

While Bill Ackman of Pershing Square Capital has been accumulating a 9.96% stake in Chipotle Mexican Grill Inc. (CMG US), worth $1.07 billion, short sellers have been steadily building positions of their own. Short interest in Chipotle has hit a historical high this week, topping $2.3 billion for the first time. Short interest has been growing since the 4th quarter of 2015 and is up 94% in 2016.

With Chipotle’s stock price falling back to 2013 levels short sellers have had a year-long fiesta with a 51% drop from its August 2015 high of $757.77. But apparently, the fiesta was not catered by Chipotle as same store sales fell 22% in their recently released quarterly report. Chipotle reported quarterly revenues of $1.04 billion which just missed analyst’s estimates of $1.09 billion. But free burrito’s, guacamole and chips as well as the termination of its Shophouse concept and deferral of Chiptopia revenues to the 4th quarter  ate into those revenues and Chipotle only reported a profit of $0.27/share versus $4.59/share last year and way below analyst’s estimate of $1.59/share.

Chipotle has been trading around its $388 support level since June and this week’s move to $368 represents a strong momentum move by both long holders and short sellers. Short sellers have been active in the past week, with over $170 million of new short activity since October 20th. Apparently short sellers have no fear of Ackman’s large long position or the chance of Chipotle hitting its $10.00/share 2017 EPS target and are continuing to short the stock.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net

The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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