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Chipotle Mexican Grill
Copyright 2012, Institute of Strategy & Valuation, All rights reserved.
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Chipotle Mexican Grill Inc. (CMG), which develops and operates fast-casual, fresh Mexican food restaurants throughout the United States, jumped 4.32% to $417.72 on May 29, 2012, reacting to news that Cleveland Research raised their Q2 2012 comp estimates for CMG between 11% to 12% from 10% to 11% based on accelerating momentum. Unemployment rate also contributed in their sentiments to patronize fast food. According to Bureau of Labor Statistics, unemployment rate fell to 8.1%, the lowest since February 2009. This made consumers more confident about eating out as evidenced by the estimated $195B revenue by the fast food restaurant industry in 2012, compared to only $190.25B last year, according to data from Statista. CMG remains under pressure as costs peak, while keeping menu price hikes modest as economic concerns linger.
Moreover, the Food and Drug Administration (FDA) became more serious about limiting the use of antibiotics on animal feeds amid health concerns. Though the FDA’s proposal may not alter the current supply chain of the major food chains, it will undoubtedly provide guidance on where the fast food industry is heading. Consumers are becoming aware of the current practices, which should favorably impact Chipotle, since it has been serving naturally raised meat for more than a decade.
The company is currently trading at a forward P/E’ of 33.1x and an EV/IC’ of 6.7x, both of which are in the high end of historical valuations. The market appears to be implying a 24% ROI’ with 12% CAGR over the next five years. Consensus estimates range from 17% to 20% ROI’ in the same timeframe.