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Recommendation: BUY
Current Price: $660
Present Value est.: $800
Upside: 21%
1-year Price Target: $865
Upside: 31%
Billy Duberstein
March 12, 2015
This report is published for informational purposes only by students of the Michael Price Student Investment Fund, a
student-run organization the Leonard N. Stern School of Business at New York University.
A Video
A Quotation
3/10/2015
Ticker
NYSE: CMG
Price
$660.77
Market Cap
20.3 B
P/E (ttm)
46.34
Forward P/E
31.74
EBIT Margin
17.47%
Net margin
10.84%
Cash + Inv.
1.25 B
$0
Debt
Revenue (ttm)
$4.1 B
Net income
$445 M
FCF(est.)
400 M
Short % Float
2.80%
52 week
472.41range
727.97
Investment Thesis
Enormous TAM
Intangibles
Management Team plus board
Unique employee culture
Business Model
CMG + 16.1%
vs.
Restauranteurs
-
1,783
Mission:
Our mission is to change the way
people think about and eat fast food.
Management
Founder and Co-CEO Steve Ells
- Former Chef
- Studied at Culinary Institute of America in Hyde Park, NY
- Sous chef under Jeremiah Tower at Stars restaurant in
San Francisco
12 months 12 months
Dec-31Dec-31USD
USD
12 12 months
12 months
months
Dec-31- Dec-31-2014A
USD
USD
USD
1,835.9
20.9%
2,269.5
23.6%
2,731.2
20.3%
3,214.6
17.7%
4,108.3
27.8%
Gross Profit
Margin %
692.3
37.7%
840.4
37.0%
1,027.0
37.6%
1,202.2
37.4%
1,552.0
37.8%
EBITDA
Margin %
363.0
19.8%
431.3
19.0%
545.0
20.0%
635.5
19.8%
828.3
20.2%
EBIT
Margin %
294.1
16.0%
356.4
15.7%
460.9
16.9%
539.5
16.8%
717.8
17.5%
179.0
9.7%
214.9
9.5%
278.0
10.2%
327.4
10.2%
445.4
10.8%
Net Income
Margin %
179.0
9.7%
214.9
9.5%
278.0
10.2%
327.4
10.2%
445.4
10.8%
5.64
42.8%
6.76
19.9%
8.75
29.4%
10.47
19.7%
14.13
35.0%
Source: Capital IQ
Valuation Comps
19 US- Based Fast-Food Companies
Industry Classifications
Fast-Food Restaurants
(Primary)
2 Year Beta
8.11
0.58
0.0
0.5
1.05
0.3
0.61
0.487
432.0
30.9
1.27
34.15
48.9
12.4
28.0
46.7
[Latest] (x)
485.0
28.5
10.3
15.9
141.3
33.7
20.6
23.8
Net Income
Revenues, 1 Yr
Cash And
193.2
11.4
( 17.1)
11.8
47.9
14.2
3.1
32,888.3
1,731.0
0
109.9
14,997.2
4,008.8
9,247.2
10.8
27.8
Debt/E
Median Beta
CMG levered
0.5
0.43
Market
5,289.6
278.4
0.12
13.1
2,077.9
609.2
1,381.5
419.5
Unlevered
0.18
0.45
184,673.9
9,719.7
227.9
636.3
92,546.1
22,021.1
N/A
20,311.3
10
11
12
13
14
15
16.00%
16.00%
16.00%
16.00%
16.00%
14.70%
13.40%
12.10%
10.80%
9.50%
8.20%
6.90%
5.60%
4.30%
3.00%
12.00%
$ 4,108,269
4,765,592
12.00%
12.00%
5,528,087
12.00%
6,412,581
12.00%
7,438,594
8,628,769
11.10%
$
9,897,197
10.20%
9.30%
8.40%
$ 11,223,422
$ 12,581,456
$ 13,940,253
7.50%
$
15,264,577
6.60%
5.70%
4.80%
$ 16,516,273
$ 17,655,895
$ 18,644,626
3.90%
$
19,446,345
3.00%
$ 20,029,735
COGS
% of Revenues
82.70%
82.56%
82.42%
82.28%
82.14%
82.00%
81.80%
81.60%
81.40%
81.20%
81.00%
- $ COGS
$ 3,397,469
3,934,408
4,556,193
5,276,228
6,110,036
7,075,590
8,095,908
9,158,312
$ 10,241,305
$ 11,319,486
12,364,308
EBIT
831,184
971,894
1,136,353
1,328,558
1,553,178
1,801,290
2,065,110
$ 2,620,768
2,900,270
Tax Rate
710,800
38.00%
38.00%
38.00%
38.00%
38.00%
38.00%
38.00%
38.00%
2,340,151
38.00%
38.00%
81.00%
81.00%
81.00%
81.00%
81.00%
$ 13,378,181
$ 14,301,275
$ 15,102,147
15,751,539
$ 16,224,085
$ 3,354,620
3,694,805
$ 3,805,650
38.00%
3,138,092
38.00%
38.00%
3,542,479
38.00%
38.00%
38.00%
EBIT (1-t)
440,696
515,334
602,574
704,539
823,706
962,971
1,116,800
1,280,368
1,450,894
$ 1,624,876
1,798,167
1,945,617
$ 2,079,864
2,196,337
2,290,779
+ Depreciation
110,000
123,200
137,984
154,542
173,087
193,858
215,376
237,344
259,417
281,208
302,299
322,250
340,619
356,968
370,890
382,017
- Capital Expenditures $
225,000
252,000
282,240
316,109
354,042
396,527
380,704
364,882
349,059
333,236
317,414
338,363
357,650
374,817
389,435
401,118
- Change in WC
160,000
86,767
100,649
116,753
135,434
157,103
167,433
175,062
179,260
179,361
174,811
165,224
150,430
130,512
105,827
77,008
= FCFF
165,696
299,767
357,669
426,219
507,318
603,198
784,039
977,769
1,181,991
$ 1,393,486
1,608,241
1,764,281
$ 1,912,403
2,047,976
2,166,408
$ 2,359,503
$ 2,263,394
$ 46,625,925
10
11
12
13
14
15
7.12%
7.12%
7.12%
7.12%
7.12%
7.29%
7.47%
7.65%
7.82%
8.00%
8.00%
8.00%
8.00%
8.00%
8.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
3.41%
3.41%
3.41%
3.41%
3.41%
3.41%
3.41%
3.41%
3.41%
3.41%
3.41%
3.41%
3.41%
3.41%
3.41%
Proportion of Debt
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Cost of Capital
7.12%
7.12%
7.12%
7.12%
7.12%
7.29%
7.47%
7.65%
7.82%
8.00%
8.00%
8.00%
8.00%
8.00%
8.00%
107.12%
114.74%
122.90%
131.64%
141.01%
151.29%
162.59%
175.02%
188.72%
203.81%
220.12%
237.73%
256.75%
277.29%
299.47%
Proportion of Equity
Cumulative WACC
Present Value
279,856
Value of Firm
$ 24,584,075
- Value of Debt
Value of Equity
$ 25,809,075
311,731
346,802
385,371
427,768
518,225
601,360
675,327
738,400
789,071
38,308,135
FIRM VALUATION
1,225,000
-
595,000
800.14
$ 24,584,075
$ Value of Debt
2014
Value of Shares
2015
2016
26,033,465
-
865.02
$
$
2017
27,528,077
-
912.45
$
$
2018
29,060,481
-
961.08
$
$
30,620,817
-
1,010.59
2019
2020
2021
2022
$ 32,196,290
$ 33,760,005
$ 35,303,771
$ 36,821,106
1,060.59
1,110.21
1,159.20
2023
1,207.35
1,254.54
801,510
804,446
797,661
781,286
$ 16,325,261
800.14
2.0%
2.5%
3.0%
3.5%
4.0%
$800.1
17.0%
18.0%
19.0%
20.0%
21.0%
16.0%
$694.13
$742.35
$800.14
$870.71
$958.85
17.0%
$746.56
$798.96
$861.77
$938.47
$1,034.27
18.0%
$802.82
$859.73
$927.95
$1,011.25
$1,115.30
865.02
17.0%
18.0%
19.0%
20.0%
21.0%
16.0%
$751.47
$803.11
$865.02
$940.61
$1,035.02
17.0%
$807.66
$863.78
$931.06
$1,013.22
$1,115.83
18.0%
$867.95
$928.90
$1,001.98
$1,091.21
$1,202.66
I think its a great time to short it though. Im actually looking at a $380 price. It
might get there today, I dont know, but it hasnt gotten there recently. Thats
like the perfect price to short it at, and at that price I think Ill come in and do it.
-- Jeff Gundlach, 5/20/2013
-- since then CMG + 77%
Current Pessimism
Can they Top Last Years Performance?
- record comps tough to beat
Food Inflation
- High beef, dairy, and avocado inflation lead to food costs at ~ 35%
of costs, up from 33%
Looks Expensive
Optimistic Surprises?
History of Conservative Guidance
Investments in people to pay off?
- More Field Leaders per restaurant now than ever
before even better performance?
Despite insane comps, room for improvement?
- currently the top-performing CMGs are 3 times
faster at peak times than the average store.
If food inflation moderates:
- margins could expand with no price increase
US Economic Tailwinds - Lower gas prices,
improving economy, no ill-effect from strong $
Billy Duberstein
March 12, 2015
This report is published for informational purposes only by students of the Michael Price Student Investment Fund, a
student-run organization the Leonard N. Stern School of Business at New York University.