Documents

Chipotle Project

Categories
Published
of 19
All materials on our website are shared by users. If you have any questions about copyright issues, please report us to resolve them. We are always happy to assist you.
Related Documents
Share
Description
Chipotle Analysis 2013
Transcript
    Investment Summary Chipotle is expected to keep a stable growth over 5 to 10 years. With a target price of $388.81, we recommend to buy the stock in the short-term. However, considering the fact the target is only 6.9% higher than the current market price, we recommend to hold in the long run. The ROE of Chipotle has been increasing in the past few years and is expected to grow in the future. ROE in the past was driven by the  profit margin. However, according to our understanding, it is likely to be driven by the Asset Turnover in the future. Moreover, the company appears to have unused debt capacity compared with its close competitors. We believe that if the company in the future takes on more debt, it can grow at an even more aggressive pace and generate higher ROE for shareholders. Finally, the company primarily operates right now in the US market where opportunity to grow at a fast pace is limited. Therefore the company management should explore growth opportunities in the international market. This could have positive implications for the return on equity generated for shareholders and drive the value in the future. Ticker: CMG NYSE May 1, 2013 Recommendation: Short-term Buy Long-term Hold Large Cap Growth Price: $362.18 Target: $388.01 Xi Hu Han Ma Nausherwan Saleem Jingwen Sun Meiyu Zhang Key StatisticsDay's Range:358.50 - 364.8352wk Range:233.82 - 424.41Volume:278,269Avg Vol (3m):558,744Market Cap:11.19BP/E (ttm):39.25EPS (ttm):9.23Div & Yield:N/A (N/A) Chipotle Mexican Grill   1 Table of Contents Industry.............................................................................................................................................................................................2   Macroeconomic Effects on Mexican Restaurants ........................................................................................................................3   Porter’s five forces analysis  ..........................................................................................................................................................4   Company Strategy ............................................................................................................................................................................5   Quality of Earnings ...........................................................................................................................................................................6   Accounting Analysis ..........................................................................................................................................................................8   Stock Performance ...........................................................................................................................................................................9   Explanation of Key Forecasts ......................................................................................................................................................... 10   Analysis of Profitability .............................................................................................................................................................. 11   Liquidity and Solvency Analysis ................................................................................................................................................. 12   Cash flow analysis ...................................................................................................................................................................... 12   Valuation ....................................................................................................................................................................................... 13   Sensitivity Analysis..................................................................................................................................................................... 14   Recommendation .......................................................................................................................................................................... 15   Why buy now? ........................................................................................................................................................................... 15   Risk ............................................................................................................................................................................................ 15   Valuation ................................................................................................................................................................................... 15     2 Company Profile Chipotle Mexican Grill, Inc. and its subsidiaries operate Chipotle Mexican Grill restaurants which serve a focused menu of burritos, tacos, burrito  bowls (a burrito without the tortilla) and salads, is one of the largest chain of Mexican restaurant in United States. As of December 31, 2012, it 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 Shop House Southeast Asian Kitchen, a restaurant in Washington, D.C. serving Asian-inspired cuisine 1 . Chipotle was founded in 1993 in Denver, CO and currently employs 30,940 individuals. From its beginning, Chipotle has experienced rapid growth in concurrence with health-related trends and changes in consumer  preferences towards Mexican food 2 . Chipotle aims to serve high-quality raw ingredients, and uses this style of preparation as a differentiator in the highly competitive Mexican Restaurant Industry. McDonalds became one of Chipotle's largest investors in 2001, and its investment allowed the company to quickly expand from 16 restaurants in 1998 to more than 500  by 2006 (the time McDonald's fully divested from Chipotle). Since McDonald's divested from Chipotle, the company has experienced robust growth during one of the worst recessions in American history. In 2012, Chipotle's global operations generated $2.7 billion in revenue. Chipotle focuses on trying to find the highest quality ingredients it can to make great tasting food; on recruiting and retaining top performing people to ensure that the restaurant experience it provide is exceptional; on  building restaurants that are operationally efficient and aesthetically  pleasing; and on doing all of this with increasing awareness and respect for the environment 3 . With the approach guided by the idea of “Food with Integrity”, Chipotle’s objective is to find the highest quality ingredients they can  —  ingredients that are grown or raised naturally. It has grown substantially over the past five years, and expects to open between 165 and 180 additional restaurants in 2013. Industry Chipotle belongs to the Mexican Restaurant Industry, which has been growing rapidly with a positive growth rate in recent years. Mexican restaurant industry refers to the industry composed of restaurants that  primarily serve Mexican-style (including Tex-Mex) food to patrons 4 . It encompasses single-location, chain and franchised enterprises, as well as full-service and fast-food operators. However, street and food-truck vendors are excluded from the industry. There are several key external drivers of the industry:  Consumer spending:  Factors that influence the growth of personal consumption expenditure influence the industry. During a recession, any spike in unemployment generally leads to declining consumption. 1  From 2012 Chipotle Annual Report 2  See Ibis World Industry Report 3  According to 2012 Chipotle Annual Report 4  See IBIS world Industry Report Chipotle is a rapid growing product differentiator.   Chipotle is competing in a growing industry. Consumer Spending is expected to increase slowly during 2013, providing a potential opportunity for the industry.     3 Conversely, when personal consumption expenditure is high, consumers will be more likely to spend money on eating at restaurants. Number of immigrants:  The number of immigrants represents the number of people who obtain legal permanent resident status in a given year. As immigrant populations have been a determining factor in the growing popularity of Mexican food, the number of immigrants in the United States is positively correlated with domestic demand for Mexican restaurants. This driver is projected to increase in 2013.  The number of immigrants in the United States is positively correlated with domestic demand for Mexican restaurants. Agricultural price index: The agricultural price index represents nominal prices received by farmers for all US agricultural products (both livestock and crops) and is also a strong indicator of the prices Mexican restaurants can expect to pay for their purchases and ingredients that go into preparing meals. When the price of meal ingredients increases, operating costs typically increase and result in lower profit margins. These increases cannot always be passed on to consumers, especially during times of low disposable income, like during the past five years. External competition:  Apart from competition within the industry itself, competition from other food-service providers, including accommodation establishments, Mexican-food retailers and different restaurants, threatens operators. Competition from other food-service  providers generally increases during a recession as these operators vie for their share of limited household expenditure on food. Chipotle is currently the second largest operator in the Mexican Restaurants industry and it currently holds a market share of 9%. The two main competitors of chipotle are Yum! Brands Inc. (Brand name: Taco Bell), who has the largest market share of 23.8% in the industry, and Brinker International Inc. (Brand name: Chili’s) with 8.9% market share. Macroeconomic Effects on Mexican Restaurants  The economy expanded modestly in 2012, continuing the slow growth seen since the recession ended in June 2009, while the unemployment rate continued to decline. According to the Bureau of Economic Analysis, the GDP growth rate was 0.4 percent in the fourth quarter of 2012. And in the third quarter, real GDP increased 3.1 percent. Data shows that the US economy is recovering from the financial crisis. Based on the Congressional Budget Office’s projection, the projected real GDP growth rate is about 1.80%. Restaurant industry is generally Number of immigrants is projected to increase in 2013.   Agricultural price index is expected to increase during 2013, which represents a potential threat to the industry. While external competition is expected to increase in 2013, the popularization of Mexican-style food by mainstream establishments continues to contribute to industry success. Macroeconomic factors are likely to provide slightly positive effect on Restaurant Industry. GDP growth is likely to have a moderate effect on revenue growth:
We Need Your Support
Thank you for visiting our website and your interest in our free products and services. We are nonprofit website to share and download documents. To the running of this website, we need your help to support us.

Thanks to everyone for your continued support.

No, Thanks