Chipotle operates over 1,350 fast casual Mexican restaurants across the United States and internationally. While the company has experienced strong growth in revenues and earnings, some analysts argue Chipotle may be nearing maturity with margins and revenue growth stabilizing. Using a discounted cash flow model, the fair value of Chipotle's shares depends on future growth assumptions, but some feel the current stock price of $298 reflects a high premium compared to the company's fundamentals and growth outlook.

1. Chipotle
An Expensive Burrito?

2. Chipotle – The Business
Ticker CMG
Market Cap ~9.4 Billion
Market Price $298.73
Trailing P/E ~34.7x
Forward P/E ~ 28.67x
Shares
Outstanding
31.5 Million
Stock Beta 0.48
Chipotle (CMG) currently develops and operates Fast-casual, Mexican Taqueria
inspired restaurants. The menu is focused on burritos, tacos, burrito bowls, and
salads. As of September 30, 2012 CMG operated 1350 restaurants including
international locations in London (5), Toronto (4), and Paris (1).
Chipotle was founded in 1993 by Steve Ellis who unknowingly became a pioneer
in the Fast-casual segment of the restaurant industry by reimagining and
repackaging traditional Mexican inspired cuisine.
“Food with Integrity”
Chipotle focuses on fresh, sustainable ingredients meeting specific quality
standards. The firm specifically sources and develops relationships with farmers
and distributors who meet or exceed these standards. These standards include
“naturally raised” pork, beef, and chicken defined as animals whose lifecycle
includes a proper vegetarian diet and does not include the use of antibiotics,
growth hormones, or feed additives. Their dairy cattle are pasture-raised with
daily access to outdoor pastures, they are also “naturally raised” without the use
of recombinant bovine growth hormone (rBGH).
Quickfact data sourcedfrom YahooFinanceintradayon
1/07/2013. Businessinformationsourceddirectlyfrom
Chipotle.com
Quick Facts:

3. Chipotle – The Business Strategy
Ticker CMG
Market Cap ~9.4 Billion
Market Price $298.73
Trailing P/E ~34.7x
Forward P/E ~ 28.67x
Shares
Outstanding
31.5 Million
Stock Beta 0.48
When Chipotle began operations in 1993, Steve Ellis sought to address the pain points
he experienced at the traditional taqueria’s in San Francisco that inspired his vision. The
primary issues were tight, small spaces with only 1 or 2 people working the kitchen to
meet demand. By applying the Ford assembly line model to this niche Steve Ellis
believed he could serve a much larger volume of customers while still adhering to his
principles of high quality, good tasting food that he developed in culinary school.
Chipotle seeks to minimize pre-opening costs. Each restaurant has a minimalist,
industrial design focus that can also be called stylish. This serves two purposes that
CMG has leveraged in their business model. (1) Restaurant development costs are
inexpensive – the rebranding and interior design process does not require specialized
parts or materials and can be sourced locally anywhere. (2) Minimalist, industrial
designs are famously adaptable to fit specific needs, spaces, and limitations. This allows
CMG flexibility in choosing restaurant locations and design customizations helping keep
the brand itself “fresh”. Approximately 99% of their restaurant spaces are leased instead
of purchased and built; again focusing on minimizing pre-opening costs.
The “Food with Integrity” mantra has helped strategically position CMG to exploit
current trends. Over the last two decades there has been a cultural shift in the U.S. as
people concerned with the growing obesity, diabetes, and heart disease rates sought
alternative higher quality food options that still provided some “fast food” elements.
Chipotle provides this with the focus of serving each customer in 90 seconds or less,
using quality fresh ingredients and perhaps more importantly, providing this service at
the price point between $6-$10. This is precisely in the mid point above traditional fast
food of $5 or less, and lower than sit-down casual-dining restaurants of $10 or more.
This provides an additional advantage because fast food is associated with poor quality
ingredients and more expensive casual dining restaurants are often comparable or
worse than CMG in ingredient quality. This provides high value to customers.
Quickfact data sourcedfrom YahooFinanceintradayon 1/07/2013. Businessinformationsourceddirectlyfrom
Chipotle.com
Quick Facts:

4. Chipotle – Balance Sheet Analysis
Ticker CMG
Total Cash
(mrq):
573.89M
Total Cash Per
Share (mrq):
18.22x
Total Debt
(mrq):
3.56M
Total
Debt/Equity
(mrq):
0.27x
Current Ratio
(mrq):
4.12x
Book Value Per
Share (mrq):
41.43x
Chipotle operates primarily as a cash based business with significant liquid assets and
little to no leverage and minimal debt. A quick look at some key ratios and
comparisons to the industry and sector lend support to this analysis.
FINANCIAL STRENGTH
Company Industry Sector
Quick Ratio (MRQ) 4.06 1.05 1.27
Current Ratio (MRQ) 4.12 1.18 1.64
LT Debt to Equity
(MRQ)
0.26 48.93 32.72
Total Debt to Equity
(MRQ)
0.27 72.46 55.28
Interest Coverage
(TTM)
344.46 33.27 67.62
CMG’s financial health dominates restaurant industry and services sector comparisons
in terms of liquidity, debt and leverage. With it’s current ratio almost 4x the industry
average and Total Debt to Equity only 0.37% of industry average, CMG is in a league of
it’s own.
Quickfact data sourcedfrom YahooFinanceintradayon 1/07/2013. TableData sourcedfrom Reuters.com
Quick Facts:

5. Chipotle – Cash Flow Analysis
According to SEC filings CMG has grown
it’s Net Operating Cash at a 34%
Compound Annual Growth Rate (CAGR)
with cash flows increasing from $39.7
million in 2004 to $411.1 million in 2011.
Since Chipotle’s public offering in 2006
the firm has steadily increased it’s Total
Free Cash Flow to Equity from $23.2
million in 2007 to $235.7 million in 2011
representing a 59% CAGR.
As discussed earlier, Chipotle’s business
model leverages their design philosophy
into relatively inexpensive development
and maintenance costs with a 5 period
average of $134.8 million in CapEx per
year.
-$200,000
-$100,000
$0
$100,000
$200,000
$300,000
$400,000
$500,000
Sum of
2011
Sum of
2010
Sum of
2009
Sum of
2008
Sum of
2007
Sum of
2006
Sum of
2005
Sum of
2004
Cash Flow Chart (in thousands)
Net cash provided by operating activities
Net cash used in financing activities
Purchases of leasehold improvements, property and equipment, net
Total FCFE
Datasourcedfrom combinedSEC 10K filings.

6. Chipotle Restaurant Location Breakdown
• As of September 30, 2012 CMG operated 1,350 restaurants of which 1,340 are U.S. based. Using July 2011 U.S. census
data of a domestic population of 311,591,917 that equates to 1 Chipotle for every 232,358 Americans. For
comparisons sake in 2009 there were 13,000 domestic McDonald’s(1) or 1 location for every 23,000 Americans.
• With location growth averaging 16.7% per year since 2005 and the Fast-casual dining segment tripling it’s market
share to 6%(2) of the restaurant industry in 2011 there is much room for domestic expansion.
2005 2006 2007 2008 2009 2010 2011
Total Store Growth YoY 18.81% 21.17% 18.89% 14.22% 13.39% 13.47%
0%
5%
10%
15%
20%
25%
%RestaurantGrowth
Total Restaurant Percentage Growth YoY
(1) http://www.geekologie.com/2009/09/mcdomination-map-of-mcdonalds.php (2) http://articles.latimes.com/2011/dec/22/business/la-fi-Fast-casual-
20111222

7. Chipotle Restaurant Location Breakdown (as of Dec 31, 2011)
0
200
400
600
800
1000
1200
1400
2005 2006 2007 2008 2009 2010 2011
Canada
United Kingdom
Wyoming
Wisconsin
Washington
Virginia
Utah
Texas
Tennessee
South Carolina
Rhode Island
Pennsylvania
Oregon
Oklahoma
Ohio
North Carolina
New York
New Mexico
New Jersey
New Hampshire
Nevada

8. Wow! A great niche, strong cash flows,
excellent balance sheet and room for
growth?!
This stock seems great! I need to call my
broker and Buy!

9. "It's far better to buy a wonderful company at a fair
price than a fair company at a wonderful price.“
- Warren Buffet
What is the fair price for
Chipotle?

10. Valuation Ratios
Company Industry Sector
P/E Ratio (TTM) 34.89 51.08 15.84
P/E High - Last 5 Yrs. 69.08 74.94 32.20
P/E Low - Last 5 Yrs. 22.31 24.04 9.50
Beta 0.85 0.30 0.93
Price to Sales (TTM) 3.60 3.45 1.47
Price to Book (MRQ) 7.24 11.75 1.56
Price to Tangible Book (MRQ) 7.35 13.01 2.63
Price to Cash Flow (TTM) 26.61 27.64 9.42
Price to Free Cash Flow (TTM) 43.29 14.66 29.59
Chipotle Valuation Analysis
To answer the question about what is the fair price, we have
to consider what is the intrinsic value of the stock relative to
the price paid.
Using some common ratios as a basis for answering this
question we can see that CMG’s P/E Ratio of 34.89x is
approximately 1.5x less than the restaurant industry’s
average P/E Ratio of 51.08x representing a relative 46%
discount for the investor.
*Note: Yahoo Finance Restaurant Industry P/E is 20.09x,
representing a 71% premium the investor must pay to own
CMG shares!!
CMG’s Price to Sales is comparable to the industry average,
while the Price to Book and Price to Tangible Book are 38%
less and 44% less than industry averages respectively.
Price to Cash Flow is also comparable to industry averages,
however CMG’s Price to Free Cash Flow of 43.29x is nearly 3x
higher than the industry average of 14.66x -- Why pay such
a high multiple for those cash flows? I think the answer may
lie in the growth numbers.
Tabledatasourcedfrom Reuters.com1/07/13

11. Chipotle Valuation Analysis
Examining the growth table there are two key takeaways with
respect to the premium price paid for Chipotle’s cash flows relative
to industry averages.
The most obvious observation is that Sales and EPS are growth
positive for CMG and the restaurant industry as a whole both on a
current basis and 5 Yr average.
Not only are these key variables growth positive but Sales and EPS
are growing at a blended 18.6% and 30.5% 5 Yr average respectively.
Looking at CMG’s 5 Yr Growth Rate of Sales compared to the
industry average we see that CMG’s 22.49% is 1.5x greater than
industry average while CMG’s EPS 5 Yr Growth Rate is 1.8x industry
average.
This growth picture certainly presents a compelling case for placing a
premium on CMG’s cash flows ... but is the premium too high?
Growth Ratios
Company Industry Sector
Sales (MRQ) vs.. Qtr. 1 Yr.
Ago
18.36 14.80 16.85
Sales (TTM) vs.. TTM 1 Yr.
Ago
21.97 16.81 15.24
Sales - 5 Yr. Growth Rate 22.49 14.78 8.78
EPS (MRQ) vs. Qtr. 1 Yr. Ago 19.58 19.10 68.20
EPS (TTM) vs. TTM 1 Yr. Ago 33.98 -- --
EPS - 5 Yr. Growth Rate 39.60 21.41 16.24
Capital Spending - 5 Yr.
Growth Rate
9.21 9.53 4.45
Tabledatasourcedfrom Reuters.com1/07/13

12. Chipotle Valuation Analysis
20112010200920082007200620052004200320022001
EBIT Margin 15.45%15.68%13.42%9.31%9.96%7.53%4.94%1.30%-2.51%-8.62%-18.79%
NI Margin 9.47%9.75%8.35%5.87%6.50%5.03%6.01%1.30%-2.44%-8.45%-18.24%
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
Margins
Income Margins
There are particular challenges to the current growth picture for
CMG. To command a premium for the price paid, a growth stock
should still be in a “high” growth stage. It can be argued that CMG
is still in high growth, however I see trends emerging to suggest
burgeoning maturation and stable growth.
In the chart below, EBIT and Net Income Margin showed strong
growth from 2001 until 2009. From 2009 until 2011 we see margins
beginning to stabilize, with EBIT averaging 14.9% and NI averaging
9.2% for the period.
In the chart below we see that revenue growth is strong
averaging 33.65% since 2002. However, there is a definitive
downtrend to observe.
This is to be expected as CMG continues to grow in size and
more competitors enter the Fast-casual dining segment of the
restaurant industry.
2011201020092008200720062005200420032002
Revenue Growth 23.62%20.91%14.00%22.67%31.94%31.10%33.35%49.19%54.18%55.51%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Growth
Revenue Growth YoY

13. Chipotle Valuation Analysis
R² = 0.2971
-20%
0%
20%
40%
60%
80%
100%
120%
140%
Q4
2012
Q3
2012
Q2
2012
Q1
2012
Q4
2011
Q3
2011
Q2
2011
Q1
2011
Q4
2010
Q3
2010
Q2
2010
Q1
2010
Q4
2009
Q3
2009
Q2
2009
Q1
2009
Q4
2008
Q3
2008
Q2
2008
Q1
2008
Q4
2007
Q3
2007
Q2
2007
Q1
2007
Q4
2006
Q3
2006
Q2
2006
Q1
2006
Earnings Surprise Percentage by Quarter
Earnings Surprise Linear (Earnings Surprise)
Below I have charted the earnings surprise percentage since 2006 by quarter. Although the R2 is low for the
linear regression, we can see there has been a definitive downtrend in terms of the magnitude of positive
earnings surprises. The graph shows that analysts are better forecasting earnings, therefore managing
investor expectations which I interpret as negative for upside stock momentum. For investors paying high
premiums to own the equity, simply meeting expectations may only cause the stock to tread water while an
earnings miss could prove disastrous.
EarningsDatasourcedfrom ThomsonReuters

14. Chipotle DCF Valuation Analysis
Unlevered Free Cash Flow Calculation
Calendar Year Ending December 31, CAGR
2011A 2012P 2013P 2014E 2015E 2016E 2008-2012
EBIT $350.6 $417.5 $511.9 $627.8 $769.9 $944.0 22.6%
Plus: Non-deductible Goodwill Amort. - - - - - -
EBITA $350.6 $417.5 $511.9 $627.8 $769.9 $944.0 22.6%
Less: Provision for Taxes (122.7) (146.1) (179.2) (219.7) (269.5) (330.4)
Unlevered Net Income $227.9 $271.4 $332.7 $408.1 $500.4 $613.6 22.6%
Plus: D&A (excl. non-deductible GW amort.) 86.6 106.2 130.2 159.6 195.7 240.0
Less: Capital Expenditures (134.8) (146.9) (160.2) (174.6) (190.3) (207.4)
Less: Increase in Net Working Capital (60.6) (72.0) (80.0) (85.0) (72.0) (60.6)
Unlevered Free Cash Flow $119.1 $158.6 $222.8 $308.1 $433.9 $585.6 38.6%
CapEx Rate 9.0%
Tax Rate 35.0%
Net Debt ($20.3)
Shares 31.500
CAPM Assumptions
10 Yr Treasury Yld 1.92%
Beta 0.48
Equity Premium 6.20%
Ke 5.82%
DCF Analysis (2012-2016): EBITDA Multiple Method
Total Enterprise Value Total Equity Value
Terminal EBITDA Multiple Terminal EBITDA Multiple
10.0x 12.0x 14.0x 10.0x 12.0x 14.0x
Discount 6.0% $8,442.0 $9,852.8 $11,263.6 Discount 6.0% $8,462.3 $9,873.1 $11,283.9
Rate 7.0% 8,073.4 9,419.6 10,765.7 Rate 7.0% 8,093.7 9,439.9 10,786.0
(WACC) 8.0% 7,724.6 9,009.6 10,294.5 (WACC) 8.0% 7,744.9 9,029.8 10,314.8
Implied Perpetuity Growth Rate Total Price Per Share
Terminal EBITDA Multiple Terminal EBITDA Multiple
10.0x 12.0x 14.0x 10.0x 12.0x 14.0x
Discount 6.0% (0.2%) 0.8% 1.5% Discount 6.0% $268.64 $313.43 $358.22
Rate 7.0% 0.8% 1.7% 2.5% Rate 7.0% 256.94 299.68 342.41
(WACC) 8.0% 1.7% 2.7% 3.4% (WACC) 8.0% 245.87 286.66 327.45
DCF Analysis (2012-2016): Perpetuity Growth Method
Total Enterprise Value Total Equity Value
Terminal Perpetuity Grow th Rate Terminal Perpetuity Grow th Rate
2.0% 2.5% 3.0% 2.0% 2.5% 3.0%
Discount 6.0% $12,546.4 $14,203.0 $16,411.8 Discount 6.0% $12,566.7 $14,223.3 $16,432.1
Rate 7.0% 9,860.3 10,853.0 12,094.0 Rate 7.0% 9,880.6 10,873.3 12,114.3
(WACC) 8.0% 8,075.2 8,727.3 9,509.9 (WACC) 8.0% 8,095.5 8,747.6 9,530.2
Implied Terminal EBITDA Multiple Total Price Per Share
Terminal Perpetuity Grow th Rate Terminal Perpetuity Grow th Rate
2.0% 2.5% 3.0% 2.0% 2.5% 3.0%
Discount 6.0% 15.8x 18.2x 21.3x Discount 6.0% $398.94 $451.53 $521.65
Rate 7.0% 12.7x 14.1x 16.0x Rate 7.0% 313.67 345.19 384.58
(WACC) 8.0% 10.5x 11.6x 12.8x (WACC) 8.0% 257.00 277.70 302.55

15. Chipotle Valuation Analysis – Thoughts and Conclusions
Looking at the DCF model provides guideline estimates for the intrinsic
value of CMG equity. Looking at the estimates using the 3% terminal
growth rate column, which coincides with Fed estimates of 2013 GDP
growth, we see over a range of discount rates that CMG equity at a
current price of $297.67 per share is undervalued.
Another angle to observe is earnings yield compared to 10 year Treasury
rates. Year to date earnings are $6.86 per share compared to the current
price of $297.67 which equates to a yield of 2.3%. This is only a 0.38%
excess return compared to the 10 yr yield of 1.92%
However, if FY12 annual earnings come in near consensus estimates at
$8.90 per share with today’s share price, then the earnings yield is 2.98%
which equates to a 1.06% excess return. Over 10 years that equates to
roughly 10.6% excess return over Treasury yields all else equal.
Depending on your risk aversion characteristics, CMG stock could be a
great buy. However, I am not convinced. I will detail my reasoning in the
next slide.
Total Price Per Share
Terminal Perpetuity Growth Rate
2.0% 2.5% 3.0%
Discount 6.0% $398.94 $451.53 $521.65
Rate 7.0% 313.67 345.19 384.58
(WACC) 8.0% 257.00 277.70 302.55

16. Chipotle Valuation Analysis – Thoughts and Conclusions
An Expensive Burrito
Chipotle equity does not currently present good value to the investor for
the following reasons:
1. As a “growth stock”, CMG is beginning to show signs of a maturing
business. Revenue growth is trending downwards, and margins are
stabilizing which acts as a P/E compressor.
2. As a “growth stock”, earnings momentum has trended downwards for
years and stalled over the last 18 months, setting up investors who are
“late to the party” for disappointment, even if earnings targets are in-
line.
3. Earnings yield compared to 10 year Treasury yield is too low to justify
the price premium. With no dividend expected, 10% excess return to
Treasuries over a decade is not good value especially if CMG is marketed
as a “growth stock”. This is assuming the consensus earnings target for
FY12 of $8.90 is met.
4. Chipotle’s use of cash is of concern from an investor perspective. Since
October of 2012 the company has authorized $200 million in share
repurchase programs. Is there any wonder why? Per Yahoo finance, from
February 2011 to December 2012 management has sold approximately
820,000 shares for a gross notional value of ~$2.3 billion. It would seem
that executives would like to limit the effects of dilution on the
company’s share price and float.
5. Finally we come to the competition. The Fast-casual segment of the
restaurant industry is growing and Chipotle may have the largest share,
but competitors are everywhere. Qdoba, Taco Bell (offering healthier
options), Bolocco, local Taqueria’s et al are all competing for market
share. The niche Chipotle occupies is becoming crowded. The product,
while good, is not so differentiated. This always leads to margin
compression.
The factors outlined above lead me to conclude that the price premium
necessary to acquire CMG’s earnings and cash flows does not present
good value or a proper risk-reward ratio to the investor.

17. Presented By Brian Christopher
Any questions comments or concerns contact:
Brian Christopher
kngllc@gmail.com
617.642.9211