Sequoia Fund has sold its position in Valeant Pharmaceuticals (VRX) and has added four new positions. Among the new names is Chipotle Mexican Grill (CMG - Get Report) , which, like Valeant, has also received a good amount of negative publicity over the last year. While the investment fund told its investors that it foresees a "slow and bumpy recovery" for the Mexican-themed restaurant chain, it believes the company can more than double its U.S. store base over time.
NEW MANAGEMENT EXITS VALEANT: According to a second quarter letter that Sequoia sent to its clients, the fund's new management that took over after the retirement of the firm's CEO Robert Goldfarb decided to sell its position in Valeant, exiting completely by mid-June. The Ruane, Cunniff, and Goldfarb investment fund noted that Valeant was its "largest position to start the year," and said the 80% decline in the stock through June 30 "badly penalized" the fund's results. Apart from the drugmaker's stock, the rest of Sequoia's portfolio generated a positive return of 2.3% for the first half of the year, the letter read. The fund also sold its positions in IDEXX (IDXX - Get Report) , Allergan (AGN - Get Report) and Cabela's (CAB) , and added four new positions in the quarter, namely CarMax (KMX - Get Report) , Charles Schwab (SCHW - Get Report) , Wells Fargo (WFC - Get Report) and Chipotle.
SEQUOIA SEES 'BUMPY' CHIPOTLE RECOVERY: Chipotle has recently been in the news due to a series of pathogen outbreaks at its restaurants. While the letter acknowledged that this has caused a "precipitous drop" in traffic at the Mexican-themed restaurant chain, with the negative publicity causing the company's stock to drop into the low $400 range from a high of $757 per share, Sequoia believes the company has an opportunity to more than double its U.S. store base over time. However, it expects Chipotle to suffer through a "slow and bumpy recovery." The firm added that it has contacted food safety experts to verify that Chipotle's management had established industry leading food safety practices in all of its stores and noted that it has reviewed the history of outbreaks at restaurant chains and tallied the long term impact each outbreak had on each chain's franchise value.
SURVEY SAYS: According to William Blair's monthly survey of 800 adults, food safety concerns at Chipotle hit the lowest level yet, with a particularly notable improvement in the Northeast, analyst Sharon Zackfia said in a note to investors. However, she pointed out that the percent of customers indicating they are eating less frequently at Chipotle remains high at roughly 45%. The analyst continues to project an approximate 20% comp decline for Chipotle in the second quarter, which is in line with consensus. She believes July could mark a turning point toward a faster pace of traffic improvement and reiterated an Outperform rating on the shares.
PRICE ACTION: In late morning trading, shares of Valeant have gained about 1.3% to $23.50, while Chipotle's stock has advanced over 2% to $417 per share.
Reporting by Jessica de Sa-Mota.
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