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Friday, November 11, 2011

Mad Money Fund Top November stock pick Chipotle Mexican Grill Public, ( NYSE:CMG)

Public, NYSE:CMG)

Chipotle Mexican Grill, Inc.

(Public, NYSE:CMG) Watch this stock

Dow Jones12,153.382.18%
S&P 5001,263.84
 Chipotle Mexican Grill, Inc. and its subsidiaries (Chipotle) operate restaurants throughout the United States, as well as two restaurants in Toronto, Canada and one in London, England. As of December 31, 2010, Chipotle operated 1,084 restaurants. The Company’s restaurants serve a menu of tacos, burritos, salads and burrito bowls (a burrito without the tortilla). The Company manages its operations and restaurants based on five regions that all report into a single segment.Revenues were $571.561 million up 22.43% from $466.841 million. TTM revenues were $2.05 billion or $65.61 per share up from TTM revenues of $1.65 billion or $51.82 per share. TTM revenue per share was up 26.6%. Same stores sales were up 10%

Net income was $50.657 million up 9% from $46.461 million. Net income per share was $1.59 up 8.9% from $1.46 per share.

Cash and long-term investments were $439.5 million and no debt. Long-term investments were $89.712 million.

Cash flow for the quarter was $75.133 million up from $37.3 million. TTM cash flow was $205.7 million or $6.60 per share up from TTM cash flow of $167.88 million or $5.28 per share. Cash flow per share was up 25%. Capital expenditures for six months were $57.681 million up 38.5% from $41.653 million. For the quarter, they spent $31.243 million up 42% from $21.95 million last year.

The Company repurchased 32,283 for an average price of $277.54 for the second quarter of 2011. They spent about $8.96 million to repurchase those shares.

Thompsonfn estimates: September 24, 2011
3Q:2011 $1.85
4Q:2011 $1.85
Fiscal 2011 $6.81
Fiscal 2012 $8.62

The Company now has 1,131 restaurants. They opened 39 new restaurants I the second quarter, including 3 relocations. They expect to open 135 to 145 restaurants for the full fiscal year. New restaurants are hitting the high end of their $1.4 million and $1.5 million opening sales range. The average sales volume for nearly 1,000 of their restaurants that have been open for at least 12 months has passed $1.9 million for the first time. These stores average $1.927 million in revenues per year.

Restaurant level margins were 25.8% down 110 basis points from 26.9% last year. Operating margins were 14.67% down from 16.06% last year. Margins were negatively affected by food inflation and the U.S Attorney’s Office entering the immigration investigation in April.

The company has raised prices which they believe will offset all or nearly all of the impact from food inflation on margins. They also have taken steps to ensure that illegal immigrants aren’t hired by the company. They are using the E-Verify system, the Department of Homeland Security's online tool, which allows the Company to verify the identity and work authorization status of every new employee immediately after the time of hire. They have hired about 12,000 new employees since March when they started to use the E-Verify system. They believe the investigation is running smoothly.

thompsonFN estimates: July 19, 2011
Q2:2011 $1.68
Q3:2011 $1.88
Fiscal 2011 $6.82
Fiscal 2012 $8.48

Potential growth drivers: It's a fantastically run company that seems to proliferate and is always popular.

1. International – They have only a few stores in major European cities. They are going to focus on developing their U.S stores first, but someday they will shift focus internationally.

2. The new restaurant concept - ShopHouse Southeast Asian Kitchen. They will open their first restaurant in Washington DC soon. We will have to wait to see how well it does.

3. Expansion of their menu. The location at the Dulles Airport serves breakfast. Their lease requires it to do so. But the breakfast menu has been successful there. They may in time expand their breakfast to other locations.

Growth, growth, growth! The additional of opening their asian cuisine stores supplies this company with a whole new way to infuse this lovely growth story. only in 38 states. still room for growth in their core business. with shophouse, they're going to duplicate their success in the chinese fast casual market. 
Chipotle is among my favorite restaurant investments. BWLD, Panera and BJRI are three others that I like for different reasons. BWLD has good long-term potential but I can also trade it a fairly predictable range a few times a year. Panera has similar growth potential as CMG, but the valuation is much better. And BJRI gives me slower growth but very consistent growth.

Chipotle’s PE ratio is 53 and it has a cash flow yield of 2.1%.  Just now getting into global expansion, potential for a stock split. Based on the PE or cash flow yields the Company is expensive. But it has a large premium because they consistently grow at high rates and they have huge potential for growth. They now have 1,131 restaurants and analysts believe they can build 3500, so there is a lot of room to grow. They also will be rolling out a new Asian concept restaurant. This would significantly boost their growth potential if the restaurant is successful. So they carry a high premium.

Chipotle is one of my favorite investments, but not at one value point. If I didn’t already own them, I would buy some now and keep trying to add at better and better value points over time. But my Chipotle strategy is based on a ten to twenty year plan and again I won’t be buying at only one value point. And I will be buying over time, always trying to increase the average value of my total position in them as I do with all of my stocks.

I think everyone should own some shares of Chipotle, but when the PE is high, I try to buy less. As the PE goes lower I add more – over time this strategy increases the value of my total portfolio as I do this with all of my stocks. I have found that for most of my really big growers, they may go years without giving me a great entry point, but at some point, they always do. If one waits for that great entry point, they will do well, but they could miss huge growth during the waiting period when earnings keep going up and the margin of safety grows for shares even purchased at high valuations. Outperform. The food is amazing, people want healthy and responsible food options, it's fast, it's delicious and it's affordable. They are coming out with their asian line and it looks like a great success

For instance in 2005, CMG was selling for a PE of 90, but the price was $59 per share. If one bought at $59 in 2005, they purchased it at a very high premium. Even today’s price of $320.30 is at a better valuation with a PE of 53. But the margin of safety is what is important. Today with earnings of $6.04, the PE if the price fell to $59 would be 9.77. During the Great recession, the PE fell to 15.49, so the person that bought at a 90 PE in 2005, is very unlikely to see their principal endangered. I believe it is important to capture that growth from high PE to high PE over time. To do this with confidence one has to believe in the company long-term relevancy.

They have given us plenty of clues to their staying power. They have been a strong company since going public. Chipotle has proven they can flourish in a niche-y market (giant burritos) - I think if this new concept (Shophouse) is anywhere near as good, they could comple close to doubling over a few yearsThey have grown to 1131 restaurants without using debt. Even during the Great Recession, they had only one quarter when earnings were down and even then they were down only a little. They produce huge amounts of cash flow even after you take out for capital expenditures to build large numbers of new restaurants. As an investment, I may be a little late. As a pick, this is solid? dont think so , buy , buy , buy !Same store sales are still growing at impressive rates, so there are no signs of cannibalization. CMG represent a very strong and important stock in my portfolio and I don’t see that changing for anytime soon      As of December 31, 2010, the Company delivered ingredients and other supplies to its restaurants from 22 independently owned and operated regional distribution centers.Chipotle categorizes its restaurants as either end-caps (at the end of a line of retail outlets), in-lines (in a line of retail outlets), free-standing or other. As of December 31, 2010, of its restaurants in operation, the Company had 212 free-standing units, 663 end-cap locations, 174 in-line locations and 35 other.
 Chipotle has been a great Caps investment for me and a great real investment for me. So I keep notes on them regularly. This is the McDonald's of the next generation. And with only about 1,000 restaurants and the new ShopHouse concept just coming out, there's plenty of room for growth.   

The price is very high at $329.30, yet if I didn't own them, I wouldn't hesitate to buy some now and then buy more on the dips below 310.00 a share . 
+3.39(1.04%) Target price 425.00 by Mid 2012 ........
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