WEN - Chipotle: Performance Continues To Be Immaculate But Risks Are Too High Ahead Of Earnings
2024-01-30 07:30:00 ET
Summary
- Chipotle Mexican Grill’s growth during the last decade has been impressive (CAGR: +12%), reflecting an impressive go-to-market strategy, aggressive expansion, successful marketing, and solid execution by Management.
- Chipotle's recent performance continues to maintain this trajectory, with growth healthily balanced between new locations and organic growth from existing locations.
- CMG’s expansion internationally and roll-out of “Chipotlanes” has been successful thus far, with scope to increase its addressable market potential. Additionally, margins are incrementally with scale.
- We are expecting similar growth in the coming quarters, although we note share price volatility associated with recent missed estimates, implying sensitivity at its current share price.
- CMG’s valuation is unreconcilable in our view. Its performance is immaculate, granted, but an NTM FCF yield of 1.3% cannot deliver value for shareholders without perfection.
Investment thesis
Our current investment thesis is:
- CMG is far too expensive for what it is. The company is trading at SaaS valuations with a <2% FCF yield and >30x EBITDA multiple.
- We believe Management is executing exceptionally well, delivering incremental improvements that are keeping investor sentiment positive, such as through "Chipotlanes" and international expansion.
- Looking ahead, we see little to derail its current trajectory. Brand development is linearly positive, the runway for new locations appears healthy, and consumer interest and spending are robust.
Company description
Chipotle Mexican Grill (CMG) owns and operates Chipotle Mexican Grill restaurants. The company offers quesadillas, burritos, tacos, burrito bowls, and salads to its customers....
Chipotle: Performance Continues To Be Immaculate But Risks Are Too High Ahead Of Earnings