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Analysis Of Chipotle's Sensitivity Analysis

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Sensitivity Analysis The sensitivity analysis focuses on examining how Chipotle’s valuation changes when some key inputs vary. Two of the most important inputs of the valuation are the weighted average cost of capital (WACC) and the perpetuity growth rate. In this thesis, it is assumed that Chipotle would have a WACC of 6.65% and a perpetuity growth rate of 2.84%, which would result in a share price of $443.90 for Chipotle. In order to determine the impacts that changes in these two inputs may have in Chipotle’s valuation, a sensitivity analysis is conducted by varying the WACC and the perpetuity growth by 0.25% consecutively while keeping all other inputs constant. The next table shows how Chipotle’s price per share varies when the perpetuity…show more content…
It is firmly committed to its clean food policy, meaning that the company only uses fresh and high-quality ingredients with no artificial preservatives. Furthermore, as 2016, Panera operated and franchised over two thousand stores throughout the U.S. as well as few stores in Canada (Panera Bread Company [PBC], 2017). Panera is similar to Chipotle with regards to their alike business philosophy and their strong presence in the U.S market. • The Wendy’s Company: Wendy’s highly values food quality, claiming to use fresh and never frozen ground beef in its food items. The U.S. is probably the most relevant market for Wendy’s, considering that there were 6,098 Wendy’s restaurants in the North America and only 439 restaurants outside of this territory as the end of 2016 (TWC, 2017). Thus, Wendy’s is comparable to Chipotle in terms of commitment to food quality and geographical presence. • Yum! Brands: It is the parent company of Taco Bell, which is a Mexican fast food chain that offers value meals at low prices. As 2016, there were 6,604 Taco Bell restaurants in operations, located primarily in the U.S (Yum! Brands, 2017). Although the market positioning of Taco Bell differs from that of Chipotle, Taco Bell could still be a key competitor of Chipotle, especially in the U.S., since Taco Bell also offers Mexican-inspired food items to the…show more content…
And considering Chipotle’s past financial results, Chipotle’s 2016 financial performance, affected by the illness outbreak, was clearly an outlier. Hence, as 2016, some valuation multiples may not be suitable for the valuation of Chipotle. A clear example of inadequate valuation multiples could be the P/E ratio. Taking into account that Chipotle closed at $377.32 as 2016, it seems to be that even the most bearish investor would not believe that Chipotle would only be worth $20.68 per share, as suggested by the average of the P/E
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