Chipotle Mexican Grill Case Analysis
The company selected is Chipotle Mexican Grill (CMG). Founded in 1993, CMG is a fast casual Mexican restaurant focused on using fresh, healthful ingredients. CMG went public in January 2006 (Fedenia & Hirschey, 2009). Chipotle Mexican Grill operates 1,600 eateries both nationwide and internationally (Standard & Poor’s, 2016).
In regards to industry conditions, Standard and Poor (2016) noted a positive outlook for the restaurants sub-industry. As a whole, the restaurant industry faced rising food costs that reduced operating margins; however, restaurants were able to absorb the higher costs (Standard & Poor’s, 2016). Particular to the fast-service restaurants, Standard and Poor (2016) assessed store sales to rise 2 to 3 percent in 2016 as customers seek lower food prices in fast-service restaurants as opposed to
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CMG revenue topped $4.5 billion in 2015. In addition, CMG netted near 10 percent growth in 2015 and revenues are projected to increase 3.1 percent in 2016. Although CMG does not pay cash dividends, 2016 earnings per share (EPS) is expected to yield 12.78, which would fall below the 2015 EPS of 15.10 (Standard & Poor’s, 2016). Among peer restaurants, CMG stock Beta holds at .48, which indicates the stock is less volatile (Standard & Poor’s, 2016).
Specifically, the stock price fell to $404.26 during the E.coli outbreak in 2015 and current stock price closed at $473 March 23, 2016 (Google Finance, 2016). Moreover, Standard and Poor (2016) noted that the stock is overvalued and expects the stock to underperform in the next 12 months. Furthermore, earnings/dividend rank is average (Standard & Poor’s, 2016).
With “food with integrity” marketing, CMG is a consumer-friendly company capitalizing on the healthy food movement. Although the recent E.coli outbreak lingers in consumer minds, CMG has a favorable financial outlook. The recommendation is to invest in CMG and hold the stock for the near
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