CMG Market Research & Analysis Report
Updated May 14, 2014

Growth and Balance Sheet

The company reported net income of $83 million, or $2.64 diluted earnings per share, for the first quarter of 2014 ending March 31. That's up from a net income of $77 million, or $2.45 diluted earnings per share for the same quarter last year. Revenues for the first quarter were $904 million, up from $727 million for the same quarter last year. Comparable restaurants sales growth was 13.4% year-on-year, and was primarily due to increased traffic and to lesser extent by the increase in average check.  The company opened 44 new restaurants during the quarter, totaling 1,637 restaurants. Food costs were 34.5% of revenue, an increase of 150 basis points in comparison to the same quarter last year, primarily due to inflationary pressure in beef, avocado, and cheese prices. Restaurant level operating margin, defined as total revenue less restaurant operating costs, expressed as a percent of total revenue, for the quarter was 25.9% down from 26.3% for the same quarter last year, primarily due to higher food costs. Operating income margin was 15.0% which is down from 16.5% recorded in the first quarter of 2013. Net cash provided by operating activities for the quarter totaled $180 million, up from $125 million for the first quarter of 2013. Cash and cash equivalents as at March 31 2014 was $412 million up from $323 million as at December 31 2013. CMG forecasted second quarter EPS of 2014 are expected to be from $2.77 to $3.34, compared to actual EPS of $2.82 for the second quarter of 2013. The financial strength indicators of the company are all at satisfactory levels. Company’s current ratio is 3.48 and the industry average is 1.27. Also, the quick ratio of 3.41 is at healthier levels than the industry average of 1.14. In terms of efficiency, the asset turnover ratio of 1.75 is better than the industry average of 1.38; moreover, the inventory turnover ratio of 187.32 is much better than the industry average of 38.92; and the ROE of 22.77% is lagging behind the industry average of 28.00%. 

Valuation

CMG PE stands at 47.33 above the industry average of 23.90, and above the stock market average represented by the S&P 500 average of 17.85. The company is currently trading above maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 22.10x to 62.24x trailing 12-month earnings. CMG's current Price/Sales of 4.68 is above the average of its industry of 2.09. CMG’s head to head comparison to its main competitors shows that the company has second highest gross margin, and one that is well above the industry average. The operating margin is average when compared to the selected competitors’ achieved margins, and it is above the industry average. The quarterly revenue growth of the company is the best result when compared to the selected peers’ achieved revenue growths, and it is above the industry average. CMG trades at the highest P/E ratio in comparison to the selected peers, and also at the highest P/S ratio. CMG’s twelve trailing months EBITDA is $654.17 million. The stock is currently trading below its intrinsic value of $645.27, this suggests that the stock is currently undervalued at these levels. The beta of 0.85 implies lower volatility of the stock with respect to the S&P 500. CMG has shown very favorable earnings consistency over the last five years. Moreover, the company earnings have increased by 34.72% over the last five years. The current quarter earnings in comparison to the same quarter last year have increased by 7.76%. The company currently does not have any outstanding debt. CMG’s current price levels are above the maximum level, 19.06% below the 52 week high of $622.09, and the technical analysis give positive view of the stock. The majority of the analyst ratings are buy. CMG currently does not pay any dividends.

About CMG

Chipotle Mexican Grill, Inc. (Chipotle) operates Chipotle Mexican Grill restaurants. Chipotle Mexican Grill restaurants serve a menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. As of December 31, 2012, the Company operated 1,410 restaurants, including Chipotle restaurants throughout the United States, as well as five in Canada, five in London, England, and one in Paris, France, and also one ShopHouse Southeast Asian Kitchen, a restaurant in Washington, D.C. Chipotle categorizes its restaurants as either end-caps (at the end of a line of retail outlets), in-lines (in a line of retail outlets), free-standing or other. As of December 31, 2012, of its restaurants in operation, the Company had 258 free-standing units, 861 end-cap locations, 233 in-line locations and 58 other. The average restaurant size is about 2,535 square feet and seats about 56 people. Most of its restaurants also feature outdoor patio space.

Competitor Comparison

Chipotle Mexican Grill, Inc. (NYSE: CMG) N.V.

Highlights

Chipotle Mexican Grill, Inc. develops and operates fast casual and fresh Mexican food restaurants. The stock closed yesterday’s trading session at $504.16. In the past year, the stock has hit a 52-week low of $350.66 and 52-week high of $622.90. The intrinsic value of the stock is above the current price. CMG has a market cap of $15.67 billion and is part of the Services sector.

• Focus on food made with ingredients from sustainable sources
• Innovative ways of publicizing and advertising the brand
• A well-recognized brand in US, UK, and Canada  

• Irregularities in the work authorization documents of the company’s employees

CMG Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. CMG's 52 week high is $622.90, current price is $504.16, is 19.06% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 47.30 the average industry P/E ratio is 22.90 and is above the S&P 500 P/E ratio of 17.85.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 1.68 % of CMG stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

CMG is trading in the range of $472.41 - $588.69 in the past 30 days. The stock has been showing support around the level of $480 and resistance in the $600 range. The stock is trading below the 50-Day Moving Average and close to the 200-Day Moving Average. The RSI(14) is 43.12. As can be seen from the chart on page 1, after rising for 4 months the stock hit the resistance from 2012 at around $440 in mid-October. The stock gapped up beyond that level and traded for the next three months in a horizontal channel, ranging from $480 to $550. In February the stock again gapped up above the resistance at around $550 and climbed all the way to the all-time high of $622.90, after which it contracted back to around $480 where it found support. The stock has gone past the psychological level of $500 and it seems that is ready to continue its upward trend. Our indicators give a positive view of CMG.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 10 Buy, 9 Outperform, and 9 Hold.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. CMG’s annual EPS for the last 5 years were 3.95, 5.64, 6.76, 8.75 and 10.47 this type of earnings action is very favorable.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. CMG currently does not have any outstanding debt.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. CMG’s EPS growth for this quarter relative to the same quarter a year earlier is 7.76%, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. CMG’s annual earnings growth rate over the past five years is 34.72%, above our target.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.