[Group 5] Student Research

This report is published for educational purposes only by students competing in the CFA Institute Research Challenge.

[Restaurant Industry]

Chipotle
Recommendation: Buy Price Target: 515.90

Date:Nov. 29, 2013

Ticker: CMG (NYSE) Price: 525.00

Highlights
Earnings/Share Mar. 2010A 2011A 2012A 2013E $1.19 1.46 1.97 2.45 Jun. $1.46 1.60 2.56 2.82 Sept. $1.53 1.90 2.27 2.66 Dec. $1.46 1.80 1.95 0.00 Year $0.00 6.76 8.75 7.93 P/E Ratio 42.77x 52.98x 34.58x 53.00x

Competitors: Panera Bread (PNRA) Jack in the Box (JACK) The Wendys Company (WEN)

Consistent Growth: Chipotle has experienced 20% sales growth per year for the last 5 years along with an average of 140 new stores every year.

No Debt: Chipotle currently operates with little to no debt. This results in no interest payments and reduced risk of the firm due to reduced short term obligations.

Found their Niche: Chipotle has found their niche in the casual dining market in the restaurant industry. Their priority

of providing a great customer experience while providing high quality ingredients has helped them become the leader in the casual dining market.

Market Profile
52 Week Price Range Average Daily Volume Beta Dividend Yield (Estimated) Shares Outstanding Market Capitalization 260.01 - 550.28 394,105 0.55 N/A 30.94M 16.21B

Book Value per Share Debt/equity Return on Equity

47.48 N/M 24.3%

CFA Institute Research Challenge

11/29/2013

Business Description
Set out to contradict the clich fast food experience, Chipotle opened its first store in 1993. The idea was simple, to provide food fast to the consumers yet with health precautions in mind. With the help of basic raw ingredients and distinctive features, Chipotle slowly made its way into the food industry, identifying its own fastest growing segment: fast-casual. Chipotles mission statement speaks for itself: Food with Integrity. When all other fastfood restaurants focused on consumer convenience and timing, Chipotle took it a step ahead and provided all organic ingredients. In 1996, McDonalds soon became one of the major investors in Chipotle. This investment helped expand the locations and by 2006, Chipotle had expanded to approximately 500 locations. Ever since, Chipotle has more than tripled in locations and employees count has reached to about 37,310

Business Risk
Chipotle has faced many risks and lawsuits since it first opened. Soon after the expansion in Minneapolis, auditors found Chipotle employees did not have sufficient legal work permits. This resulted in Chipotle firing about 500 employees. Once these audits continued across nation, more employees were found with illegal documents. Ever since, Chipotle has been cautious hiring employees. The most recent lawsuit faced by Chipotle entails the Ramen concept. According to Connaughton, he presented this concept in order to establish a high quality ramen chain with Chipotle. Later he found out that the very same deal was allegedly presented to Chipotle first by the CEO of Momofuku, but once the deal did not go through Chipotle stole the Ramen Concepts. Connaughton argues this omission of details could have potentially dragged him in a lawsuit with Momofuku CEO Chang as well. Chipotle has not made a statement as of yet.

STRENGTHS -All organic ingredients -Online services -Strong management team -Reputation -Brand equity -Focus on quality -Affordable -Fast and easy OPPORTUNITIES -Drive Thru locations -Expansion abroad -More local locations -Menu expansion

WEAKNESSES -Menu limitations -Lack of drive-thru locations -Not authentic

THREATS -Competition -Long-term lease liabilities

CFA Institute Research Challenge

11/29/2013

Recent Financial Performance

Chipotles net income increased from $78.2 million to $309.17 million in the past five years. The earnings rose 17.2% to $2.66 a share (Chipotle sales strong as traffic, market share gain). The revenue has increased 18% to $826.9 million in third quarter of 2013 as compared to the third quarter of 2012. The comparable restaurant sales increased 6.2% and Chipotle opened 37 new restaurants in the third quarter of 2013. The food costs increased due to the higher ingredient costs. The higher ingredient costs were driven by the higher produce cost (Chipotle: Press Release). Chipotle continue offers their customers with the idea that food served fast did not have to be a typical fast food experience (Chipotle: Press Release).

Product Differentiation
Chipotles direct competitors such as Qdoba, Freebirds World Burrito, and Taco Bell are all private companies. Chipotle (McDonalds): Chipotle offers various meat and veggie choices such as chicken, steak, barbecue pork, as well as beans, rice, and guacamole. In addition, besides burritos Chipotle also sells burrito bowls, soft tacos, crispy tacos, chips and salsa, beers, and margaritas. Chipotle aim for the freshest ingredients and they established the idea of demonstrate that food served fast didnt have to be a fast-food experience (Chipotle: About us). Moreover, Chipotle created a new category in fast-food restaurant with assembly food line. Thus, Chipotle has successfully provided their customers higherquality ingredients with sophisticated cooking techniques and great dining atmosphere. Wendys: Wendys dining environment is more like a fast -food restaurant compared to Chipotles fast-casual dining. Wendys mainly sells fried food such as French fries, fried chicken burgers and other items like old fashioned burgers, chicken wraps, and salad. Their competitive advantage is their drive-thru service, as well as well-known global brand and expert management. It has debt $1,417 million, revenue $2,524.9 million, and net income $38.8 million. Overall, Wendys growing in a slower pace than Chipotle but Wendys is more well-known than Chipotle due to their multiple locations worldwide. Panera bread: Panera focus on serving people with no money and suffering from hunger with no judgments. Panera Cares community cafes mission is trying to raise the awareness of the food insecurity in the U.S. Panera sells bagels, breakfast sandwiches, soups, pasta, pastries, sweets and Panini. Panera is known for their breakfast food and brunch. It is very different from Chipotle and it attracts different customer segment (Panera bread). Panera has zero debt like Chipotle but its revenue, net income and total enterprise value are all less than Chipotle. Panera is growing with a slower growth rate compared to Chipotle. The revenue increased from 1,298.9 million in 2008 to 2,294.8 million in 2013 (Capital IQ).

Porters Five Forces

Buyers Power: Buyers have many different options to choose from, so Chipotle has to make sure their prices remain competitive to their competitors. However, buyers have little powers to influence over the price. Chipotles price seems slightly higher than its competitors, but its still in a reasonable range. Therefore, Buyers has a neutral purchasing power. Suppliers Power: Chipotle provides the freshest ingredients for their customers. There are only a few farms that Chipotle thinks are acceptable and have the abilities to provide the best raw materials. Due to the huge demand from the customers, Chipotle buys large amount of products from these suppliers.

CFA Institute Research Challenge

11/29/2013

These being said, the suppliers power is neutral. Industry Rivalry: There are many other fast-food restaurants within the marketplace. The competition is very intense due to the similar products each brand is selling. The industry rivalry is tremendously high, so Chipotle should obtain competitive advantages by increasing product differentiation and finding ways to raise customers brand awareness. Threat of Substitution: The threat of substitution is high. Chipotles burritos and other products can be easily substituted for another brands similar products. Customers can find other alternatives easily and spend less money on similar products. Barriers to Entry: The entry rate is very low because it has a high fail rate. The industry is already extremely competitive so its certainly difficult for new brands strive to survive and achieve what Chipotle has accomplished so far. Major Trends: Rivalry Among Competing Firms: (high) Entry of New Competitors: (low) Potential Development of Substitute Products: (medium) Bargaining Power of Suppliers: (neutral) Bargaining Power of Consumers: (neutral)

Ratio Analysis
Chipotle is currently doing well compared to other firms in its industry. Chipotle currently has a debt-to-equity ratio of .28% which is well below the industry. With little debt Chipotle also does not have any significant interest liabilities resulting in an insignificant interest coverage ratio near zero. The only other company comparable to Chipotle is Panera Bread. They too have a low debt-to-equity ratio of .8% and an interest coverage ratio of 261.7 times. With regards to the efficiency ratios Chipotle is performing well with favorable turnovers. Chipotle has an inventory turnover of 170.35 compared to competitors like Jack in the Box and Panera Bread with turnovers of 151.82 and 74.9 respectively. Chipotles average days sales outstanding is impressive at 1.7 whereas Jack in the Box and Panera bread stand at 16.7 and 6.4 respectively. Chipotle also possesses above industry liquidity ratios. Current, Quick, and Cash ratios above 2.2 which shows that Chipotle has no trouble meeting short term liabilities. Competitor Jack in the Box and Panera Bread have current ratios of .84 and 1.73 respectively whereas Chipotle is nearing 3.0 at 2.93. When comparing profitability ratios the similarities between Chipotle and Panera Bread become more apparent. Chipotle has a gross margin of 37.6% and Panera Bread has a gross margin of 35.5%. Both Chipotle and Panera bread have similar Return on Equity ratios with Chipotle at 24.3% and Panera Brad at 23.5%. Overall Chipotle is performing above the industry average and their closest public firm competitor is Panera Bread.

CFA Institute Research Challenge

Chipotle Jack/Box Panera 0.28% 103.25% 0.80% 170.35 151.82 74.80 170.35 151.82 74.80 11.3 29.7 3.3 2.93 0.84 1.73 2.67 0.3 1.38 37.60% 23.15% 35.50% 24.30% 16.70% 23.50%

11/29/2013

Debt/Equity Inventory Turnover Inventory Turnover Avg. Days Payables outstanding Curent Ratio Quick Ratio Gross Margin Return on Equity

Assumptions
Sales growth for Chipotle has increased about 20% per year in the last 3 years along with an average of 150 new locations opening each year. However, new competitors like Qdoba, a subsidiary of public company Jack in the Box, have affected sales negatively. Food prices are expected to rise in 2014 as well. The projected growth rates are conservative because of the uncertainty of future competitors and food prices.

Projected Sales Growth Year 2013 2014 15% 2015 10% 2016 5% 2017 5%

Percentage 20%

The projections are based on a normal economic condition and that Chipotle is operating at full capacity. Current product prices will remain the same. All current assets and current liabilities will scale with sales. Fixed assets will also scale with sales due to the new stores and equipment required to generate new sales. Depreciation will scale with fixed assets and the tax rate will remain the same. Other assets and goodwill will not be affected by sales. Excess capital, negative AFN, will be invested into short term investment account Investments (new). Below is a mini summary of future forecast:

in thousands 2013 2014 2015 2016 2017 Sales $ 3,277,468.80 $ 3,769,089.12 $ 4,145,998.03 $ 4,353,297.93 $ 4,570,962.83 Cash 387,063.60 445,123.14 489,635.45 514,117.23 539,823.09 Investments (New) 88,087.30 250,544.78 502,724.94 852,084.44 1,218,856.63 Net income 333,378.90 383,219.92 421,431.36 442,447.66 464,514.77 FCFF 298,494.84 429,939.37 576,937.66 725,389.56 761,659.04

CFA Institute Research Challenge

11/29/2013

Excess Capital
Chipotle has found itself in a unique position in which they have excess capital as sales increase. This can be contributed to operation without debt, high sales, and high profit margins. Chipotles operating cost per restaurant is relatively low because many of their locations are operated on prepaid lease agreements and the average restaurant is only about 2500 square feet. With the excess capital Chipotle can reinvest into new locations and international expansion which has already begun in Europe.

Restaurant Properties Restaurants at Beginning Restaurants Opened Restaurants Acquired Restaurants Closed Total Restaurants 573 704 837 125 136 121 8 2 3 2 956 1,084 1,230 129 1 150 4 183 3

704 837 956 1,084 1,230 1,410

Weighted Average Cost of Capital

in millions 3.53 1,245.93 5.87% 0.22% 5.89% 2.70% 0.55 8.50% 39.26% Weights 0.28% 99.72%

Total Debt Total Equity WACC Cost of Debt Cost of equity Risk Free Beta Market Rate Tax Rate

Chipotle currently has a capital structure that consists of very little debt and is entirely made up of equity. With little debt Chipotles interest expense is little to none which reduces short term obligations. The reduced risk also means a lower beta which in turn reduces CAPM and cost of equity. The low beta and cost of equity figures lead to a considerably low WACC at 5.87%. The optimal capital structure for Chipotle can be considered to be 100% equity and 0% debt because the company currently has less than one percent of its capital structure in debt. The current near 100% equity capital structure leads to an enterprise value of 926 million which would only consist of market cap less cash and equivalents.
6

CFA Institute Research Challenge

11/29/2013

Valuation
To generate the intrinsic value of Chipotle the forecasted free cash flow to firm over the next five years were discounted at the WACC. Therefore, with Chipotles low WACC of 5.87% the intrinsic value of the firm is 2.3 Billion with a per share value of $74.02. The firm currently has a book value per share of $47.38 which would make Chipotle seem overpriced. When using P/Es Chipotle has a P/E ratio of 53.06 which is high compared to the others in the industry like Panera bread with a P/E ratio of 26.76. When comparing Chipotles PEG ratio of 2.65 to Panera breads PEG ratio of 1.58 Chipotle may seem overvalued. An important factor when considering the restaurant industry is the growth metric of same stores sales. The metric is relevant because it compares a single restaurant to its previous sales figures which results in a better overall picture of how Chipotles restaurants are doing. Chipotle has continued to improve same store sales about 3%-6% which is considered good and healthy in the restaurant industry. Chipotle has consistently in the last 3 years generated a minimum sales growth of 20% each year. Chipotles return on equity has remained around healthy 24.3% and the stock priced has continued to rise each year. Chipotles ability to operate with li ttle to no debt reduces the risk of the investment. Chipotle is continuing to open at least 100 new stores every year to increase their sales growth and keep their lead in the casual dining market. With these factors taken into account, Chipotles P/E and PEG ratios are reflective of the firms ability to grow and produce favorable cash flows.

Recommendation
Chipotle is a growing company which has found its way to stand out in a congested industry. The firms continuous expansion which is not dependent upon debt is supported by just equity and the firms own generated cash. Chipotle is a fairly priced and it is recommended that Chipotle is a buy because the company has very little risk with relatively high consistent growth and high profit margins.

CFA Institute Research Challenge Forecasted Income Statement

11/29/2013

Income Statements Actual Percent Percent of Sales-Based Forecasts 20% 15% 10% 5% 5% $ in thousands 2012 of Sales Forecast Basis 2013 2014 2015 2016 2017 Net Sales $ 2,731,224.00 100.00% 1+growth rate) x Cur. Sales $ 3,277,468.80 $ 3,769,089.12 $ 4,145,998.03 $ 4,353,297.93 $ 4,570,962.83 Food, beverage and packaging 891,003.00 32.62% % of Sales x Forecasted Sales 1,069,203.60 1,229,584.14 1,352,542.55 1,420,169.68 1,491,178.17 Labor 641,836.00 23.50% % of Sales x Forecasted Sales 770,203.20 885,733.68 974,307.05 1,023,022.40 1,074,173.52 Occupancy 171,435.00 6.28% % of Sales x Forecasted Sales 205,722.00 236,580.30 260,238.33 273,250.25 286,912.76 Other operating costs 286,610.00 10.49% % of Sales x Forecasted Sales 343,932.00 395,521.80 435,073.98 456,827.68 479,669.06 General and administrative expenses 183,409.00 6.72% % of Sales x Forecasted Sales 220,090.80 253,104.42 278,414.86 292,335.61 306,952.39 Depreciation and amortization 84,130.00 9.71% % of Sales x Fixed Assets 100,956.00 116,099.40 127,709.34 134,094.81 140,799.55 Pre-opening costs 11,909.00 0.44% % of Sales x Forecasted Sales 14,290.80 16,434.42 18,077.86 18,981.76 19,930.84 Loss on disposal of assets 5,027.00 0.18% % of Sales x Forecasted Sales 6,032.40 6,937.26 7,630.99 8,012.54 8,413.16 Total Operating Expenses 2,275,359.00 83.31% % of Sales x Forecasted Sales 2,730,430.80 3,139,995.42 3,453,994.96 3,626,694.71 3,808,029.45 Gross Profit 455,865.00 547,038.00 629,093.70 692,003.07 726,603.22 762,933.38 Interest + Other income 1,820.00 1,820.00 1,820.00 1,820.00 1,820.00 1,820.00 EBT 457,685.00 548,858.00 630,913.70 693,823.07 728,423.22 764,753.38 Taxes (39%) 179,685.00 39.26% 215,479.10 247,693.78 272,391.71 285,975.57 300,238.62 Net Income (NI) 278,000.00 10.18% 333,378.90 383,219.92 421,431.36 442,447.66 464,514.77 Cash Dividends (0% of NI) Added Retained Earnings 278,000.00 333,378.90 383,219.92 421,431.36 442,447.66 464,514.77

CFA Institute Research Challenge Forecasted Balance Sheet

Balance Sheets $ in Thousands Cash & Mkt Sec Accounts Rec Inventories Current deferred tax asset Prepaid expenses and other current assets Income tax receivable Investments Investments (New) Total Current Assets Fixed Assets, Net Long term investments Other assets Goodwill Total Assets before Investments (New) Total Assets after Investments (New) Liabilities Accounts Pay Accrued payroll & benefits Accrued liabilities Current portion of deemed landlord financing Income tax payable Total Current Liab Deferred Rent Deemed Landlord Financing Deferred income tax liability Other liabilities Total Liabilities Additional Funds Needed Shareholder's equity Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of December 31, 2012 and 2011 Common stock $0.01 par value, 230,000 shares authorized, and 34,912 and 34,357 shares issued as of December 31, 2012 and 2011, respectively Additional paid-in capital Treasury stock, at cost, 3,819 and 3,105 common shares at December 31, 2012 and 2011, respectively Accumulated other comprehensive income Retained earnings Total Shareholder's Equity Total Liabilities and Shareholders equity Actual 2012 $ 322,553.00 16,800.00 11,096.00 8,862.00 27,378.00 9,612.00 150,306.00 546,607.00 866,703.00 190,868.00 42,550.00 21,939.00 1,668,667.00 Percent Percent of Sales-Based Forecasts 20% of Sales Year 2013 11.81% % of Sales x Forecasted Sales $ 387,063.60 0.62% % of Sales x Forecasted Sales 20,160.00 0.41% % of Sales x Forecasted Sales 13,315.20 0.32% % of Sales x Forecasted Sales 10,634.40 1.00% % of Sales x Forecasted Sales 32,853.60 0.35% % of Sales x Forecasted Sales 11,534.40 5.50% % of Sales x Forecasted Sales 180,367.20 88,087.30 655,928.40 31.73% % of Sales x Forecasted Sales 1,040,043.60 Fixed 190,868.00 Fixed 42,550.00 Fixed 21,939.00 1,951,329.00 2,039,416.30 2.1% % of Sales x Forecasted Sales 2.6% % of Sales x Forecasted Sales 2.1% % of Sales x Forecasted Sales 0.01% % of Sales x Forecasted Sales 15% 2014 $ 445,123.14 23,184.00 15,312.48 12,229.56 37,781.64 13,264.56 207,422.28 250,544.78 754,317.66 1,196,050.14 190,868.00 42,550.00 21,939.00 2,205,724.80 2,456,269.58 10% 2015 $ 489,635.45 25,502.40 16,843.73 13,452.52 41,559.80 14,591.02 228,164.51 502,724.94 829,749.43 1,315,655.15 190,868.00 42,550.00 21,939.00 2,400,761.58 2,903,486.52 5% 2016 $ 514,117.23 26,777.52 17,685.91 14,125.14 43,637.79 15,320.57 239,572.73 852,084.44 871,236.90 1,381,437.91 190,868.00 42,550.00 21,939.00 2,508,031.81 3,360,116.25

11/29/2013

5% 2017 $ 539,823.09 28,116.40 18,570.21 14,831.40 45,819.68 16,086.60 251,551.37 1,218,856.63 914,798.74 1,450,509.81 190,868.00 42,550.00 21,939.00 2,620,665.55 3,839,522.18

58,700.00 71,731.00 56,278.00 143.00 186,852.00 167,057.00 3,386.00 48,947.00 16,499.00 422,741.00 -

70,440.00 81,006.00 89,106.60 93,561.93 98,240.03 86,077.20 98,988.78 108,887.66 114,332.04 120,048.64 67,533.60 77,663.64 85,430.00 89,701.50 94,186.58 171.60 197.34 217.07 227.93 239.32 224,222.40 257,855.76 283,641.34 297,823.40 312,714.57 167,057.00 167,057.00 167,057.00 167,057.00 167,057.00 3,386.00 3,386.00 3,386.00 3,386.00 3,386.00 48,947.00 48,947.00 48,947.00 48,947.00 48,947.00 16,499.00 16,499.00 16,499.00 16,499.00 16,499.00 460,111.40 493,744.76 519,530.34 533,712.40 548,603.57 (88,087.30) (250,544.78) (502,724.94) (852,084.44) (1,218,856.63)

349.00 816,612.00

349.00 816,612.00

349.00 816,612.00

349.00 816,612.00

349.00 816,612.00

349.00 816,612.00

(521,518.00) 1,024.00 949,459.00 1,245,926.00 1,668,667.00

(521,518.00) (521,518.00) (521,518.00) (521,518.00) (521,518.00) 1,024.00 1,024.00 1,024.00 1,024.00 1,024.00 1,282,837.90 1,666,057.82 2,087,489.19 2,529,936.84 2,994,451.61 1,579,304.90 1,962,524.82 2,383,956.19 2,826,403.84 3,290,918.61 2,039,416.30 2,456,269.58 2,903,486.52 3,360,116.25 3,839,522.18

CFA Institute Research Challenge Forecasted Cash Flow Statement

11/29/2013

Statement of Cash Flows Percent of Sales-Based Forecasts 20% 15% 10% 5% 5% $ in Thousands Year 2013 2014 2015 2016 2017 Net Income $ 333,378.90 $ 383,219.92 $ 421,431.36 $ 442,447.66 $ 464,514.77 Inc. in A/R 3,360.00 3,024.00 2,318.40 1,275.12 1,338.88 Inc. in Inv. 2,219.20 1,997.28 1,531.25 842.19 884.30 Inc. in Investments 118,148.50 189,512.56 272,922.39 360,767.72 378,750.83 Inc. Current deferred tax asset 1,772.40 1,595.16 1,222.96 672.63 706.26 Inc. Prepaid expenses and other current assets 5,475.60 4,928.04 3,778.16 2,077.99 2,181.89 Inc. Income tax receivable 1,922.40 1,730.16 1,326.46 729.55 766.03 Inc. in A/P 11,740.00 10,566.00 8,100.60 4,455.33 4,678.10 Inc. in Acc. Liab. 25,601.80 23,041.62 17,665.24 9,715.88 10,201.68 Inc. Current portion of deemed landlord financing 28.60 25.74 19.73 10.85 11.40 CF from Operations 237,851.20 214,066.08 164,117.33 90,264.53 94,777.76 Inc. in Fixed Assets, Net CF from Investments Inc. in Bank Loan Inc. in Long-Term Debt (New) Inc. in Common Stock Payment of Cash Dividends CF from Financing Net Cash Flow Beginning Cash Ending Cash Before Borrowing 173,340.60 156,006.54 119,605.01 173,340.60 156,006.54 119,605.01 65,782.76 65,782.76 69,071.90 69,071.90 -

64,510.60 58,059.54 44,512.31 24,481.77 25,705.86 322,553.00 387,063.60 445,123.14 489,635.45 514,117.23 387,063.60 445,123.14 489,635.45 514,117.23 539,823.09

10

CFA Institute Research Challenge Ratios

Chipotle Leverage Ratios Debt/Equity Interest Coverage 0.28% Jack/Box Panera 103.25% 5.5 0.80% 261.7

11/29/2013

Efficiency Ratios
Inventory Turnover Accounts Receivable Turnover Avg. Days Sales Oustanding Avg. Days Payables outstanding Total Asset Turnover Liquidity Ratios Curent Ratio Quick Ratio Cash Ratio Profitability Ratios Gross Margin Operating Margin Net Margin Free Cash Flow Margin Return on Asset Return on Equity 170.35 216.86 1.7 11.3 1.77 151.82 21.70 16.7 29.7 1.04 74.80 57.1 6.4 3.3 1.9

2.93 2.67 2.2

0.84 0.3 0.5

1.73 1.38 1.04

37.60% 19.96% 10.20% 8.80% 18.60% 24.30%

23.15% 14.20% 3.82% 4.50% 5.00% 16.70%

35.50% 17.60% 8.10% 5.60% 15.40% 23.50%

11

CFA Institute Research Challenge WACC

Cost of Debt Cost of Equity Risk Free Beta Market Rate 0.22% 5.89% 2.70% 0.55 8.50% Weights 0.28% 99.72%

11/29/2013

Total Debt Total Equity Tax WACC

3.53 1245.93 39.26% 5.87% millions 1245.93 322.55 3.53 0 926.91

Market Cap Less: Cash +Total Debt +Minority Interest Enterprise Value

Discounted Cash Flow

EBIT After Tax Less CapEx net Plus: Depr net Less: Non-Cash NWC FCFF FCFE WACC Horizon Value NPV Share Outstanding Intrinsic Value/share 446,082.00 272,110.02 173,340.60 98,769.42 100,956.00 199,725.42 (98,769.42) 298,494.84 298,494.84 5.87% $ 87,172,576.27 $2,301,515.76 31,093,000 $74.02 512,994.30 564,293.73 312,926.52 344,219.18 156,006.54 119,605.01 156,919.98 224,614.16 116,099.40 127,709.34 273,019.38 352,323.50 (156,919.98) (224,614.16) 429,939.37 576,937.66 429,939.37 576,937.66 Price/Earnings PEG Ratio 20% Growth 592,508.42 361,430.13 65,782.76 295,647.38 134,094.81 429,742.18 (295,647.38) 725,389.56 725,389.56 53.06 2.653 622,133.84 379,501.64 69,071.90 310,429.75 140,799.55 451,229.29 (310,429.75) 761,659.04 761,659.04

12

CFA Institute Research Challenge References

11/29/2013

"Chipotle Mexican Grill, Inc. Revenue & Earnings per Share (EPS)." NASDAQ.com. N.p., n.d. Web. 02 Dec. 2013. <http://www.nasdaq.com/symbol/cmg/revenue-eps>. "Chipotle: Still Standing Strong." Chipotle Mexican Grill, Inc. (CMG):. N.p., n.d. Web. 02 Dec. 2013. <http://seekingalpha.com/article/1832502-chipotle-still-standing-strong>. "Chipotle Sued for Allegedly Stealing Ramen Concept." The Christian Science Monitor. The Christian Science Monitor, n.d. Web. 02 Dec. 2013. <http://www.csmonitor.com/layout/set/r14/Business/2013/0607/Chipotle-sued-for-allegedlystealing-ramen-concept>. "CMG: Summary for Chipotle Mexican Grill, Inc. Co- Yahoo! Finance." Yahoo! Finance. N.p., n.d. Web. 02 Dec. 2013. <http://finance.yahoo.com/q?s=CMG>. "Damodaran Online: Home Page for Aswath Damodaran." Damodaran Online: Home Page for Aswath Damodaran. N.p., n.d. Web. 02 Dec. 2013. <http://pages.stern.nyu.edu/~ adamodar/>. "Investor's Business Daily." Investor's Business Daily. N.p., n.d. Web. 02 Dec. 2013. <http://news.investors.com/business/101713-675658-chipotle-q3-sales-strong-double-digit-profitgain.htm>. "Investors." Home. N.p., n.d. Web. 02 Dec. 2013. <http://www.aboutwendys.com/Investors/>. "Panera Bread." Panera Bread. N.p., n.d. Web. 01 Dec. 2013. <https://www.panerabread.com/enus/home.html>. "S&P Capital IQ." S&P Capital IQ. N.p., n.d. Web. 02 Dec. 2013. <https://www.capitaliq.com/CIQDotNet/company.aspx?companyId=26446>.

13

CFA Institute Research Challenge

11/29/2013

Disclosures:
Ownership and material conflicts of interest: The author(s), or a member of their household, of this report [holds/does not hold] a financial interest in the securities of this company. The author(s), or a member of their household, of this report [knows/does not know] of the existence of any conflicts of interest that might bias the content or publication of this report. [The conflict of interest is] Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue. Position as a officer or director: The author(s), or a member of their household, does [not] serves as an officer, director or advisory board member of the subject company. Market making: The author(s) does [not] act as a market maker in the subject companys securities. Ratings guide: Banks rate companies as either a BUY, HOLD or SELL. A BUY rating is given when the security is expected to deliver absolute returns of 15% or greater over the next twelve month period, and recommends that investors take a position above the securitys weight in the S&P 500, or any other relevant index. A SELL rating is given when the security is expected to deliver negative returns over the next twelve months, while a HOLD rating implies flat returns over the next twelve months. Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with [ Society Name], CFA Institute or the CFA Institute Research Challenge with regard to this companys stock.

14