Chipotle Mexican Grill

Fundamentals

##Symbol## CMG

Chipotle Mexican Grill (CMG) has been a marvel in the fast food segment and is essentially seeing totally the opposite of what the titan of the industry (McDonald's (MCD)) is seeing. It's even created (invented) a new segment which is sometimes referred to as "quality fast food." The company may be the biggest growth story in all of the food / fast food/ restaurant segment and some of the results have simply never been seen before. The stock is up 370% over the last five-years and is well deserving of that run. Let us recall that the relationship, in general, between fundamentals and company valuations is not one of correlation but rather one of causation. A stock price is the present value of all future expected free cash flows. There is no better determinant of company valuation than the fundamentals of the company, by definition.

It turns out that if we take all companies in the Consumer Services sector and rank them buy their fundamental star ranking, CMG is the second best, topped only by Starbucks (SBUX). Here's the scan result:


Click Here to Scan More

CMG's revenue (TTM) has risen for more than five consecutive quarters (triggering a trend). In fact, for every quarter since going public the company has broken all-time highs in revenue (when rolled into trailing-twelve-months); that's 30 quarters in a row. The company's operating margins are increasing, earnings are "trending" higher to all-time highs, free cash flow is at an all-time high all the while capital expenditures are also at all-time highs. The company is pushing growth with massive expenditures but even with those expenses every measure of profitability is rising. A big part of these phenomena are a reflection of a breathtaking "stickiness" to the firm's stores, where the company could actually continue growth even if it didn't open new stores.

Technicals   |   Support: 600.05   |   Resistance: 726.63   

Swing Death Cross Alert: The short-term 10 day MA is now below the 50 day MA.

CMG has a three bull (stock is range bound) technical rating because its trading above its 10- and 50-day moving averages, but below its 200- day moving average. The stock is up on the day but the 10-day MA is below the 50 day MA ("swing death cross").

Here are the consensus estimates for next quarter. Note that last quarter's actual result is included at the far right.

EARNINGS ESTIMATES
Earnings Date	EPS	Revenue (Mean)	Revenue (Median)	Last Quarter (Actual)
2015-07-21	$4.42	$1,224.8 M	$1,225.0 M	$1,089.0 M	Provided by ZACKS

Let's look at the core elements that drive the company's fundamental rating.

Fundamentals Rating Summary

METRIC	CURRENT	1YR AGO	2YR AGO	DIRECTION
Revenue (TTM US$ Millions)	4,293	3,392	2,817
Operating Margin (QTR)	1.228	1.18	1.20	RISING
Net Income (TTM US$ Millions)	485	334	292
Levered Free Cash Flow (TTM US$ Millions)	465	340	330	RISING
Capital Expenditures (TTM US$ Millions)	265	211	192

Stock Returns and Chart

CMG is down -2.0% over the last three months and down -10.6% over the last six months. The stock price is up +5.7% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom). This is going to be the only chart we look at that isn't going straight up.
Click here to interact with this stock chart


Now let's examine the visualizations of the critical financial measures.

METRIC	CURRENT	1YR AGO	2YR AGO	DIRECTION
Revenue (TTM US$ Millions)	4,293	3,392	2,817

The revenue (TTM) mountain is incredible. The consecutive quarters of record high sales is absurd and still, CMG grew revenue by 27% year-over-year. Any number over 20% has an added impact on the fundamental (star) rating. The company certainly took down its projections and Wall St. smacked the stock for it, but let's not lose the forest for the trees. This is a fast food company that "disapointingly" grew 27% year-over-year while it already stands at over $4 billion in annual sales. That's "technology growth stock" year-over-year comps.

What do all these numbers mean?
CMG's fundamental rating benefited these results:
1. The one-year change was positive.
2. The one-year change was greater than +20% (an extra boost to the rating).
3. The two-year change was positive.
Finally, the up trend (consecutive quarters) in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below.


Click Here to Interact With This Chart

METRIC	CURRENT	1YR AGO	2YR AGO	DIRECTION
Net Income (TTM US$ Millions)	485	334	292

Net Income (after tax profit) over the trailing twelve months (TTM) for CMG is rising and it's rising abruptly. Net income (TTM) has risen for 28 consecutive quarters (triggering a "trend"), each time breaking a new all-time high. The company has grown earnings 45% year-over-year. Again, this may be a fast food restaurant, but its growth is "small cap technology" like.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line. Note the rising bars from a year ago (four quarters ago).


Click Here to Interact With This Chart

METRIC	CURRENT	1YR AGO	2YR AGO	DIRECTION
Levered Free Cash Flow (TTM US$ Millions)	465	340	330	RISING

Levered Free Cash Flow (TTM US$ Millions) is a critical determinant of stock price since market cap is the present value of all future free cash flows. For CMG the metric is rising and is at all-time highs. For the most recent trailing-twelve-months the company reported Levered Free Cash Flow (TTM US$ Millions) of $465 million, which is a 36.6% rise.

For our next chart we plot Levered Free Cash Flow (TTM US$ Millions) in the blue bars through time. Note the rising bars from a year ago (four quarters ago).



Click Here to Interact With This Chart

METRIC	CURRENT	1YR AGO	2YR AGO	DIRECTION
Capital Expenditures (TTM US$ Millions)	265	211	192

Capital Expenditures (TTM US$ Millions) is trending higher meaning that for at least five consecutive quarters, it's been rising. In fact, CapEx just hit an all-time high as well to $265 million. That's a 26% rise from last year's value of $211 million. Further, we can see that CapEx today relative to two-years ago is up 38%. What's remarkable about all of this is the reality that CMG is crushing everything in terms of revenue, earnings and free cash flow growth, yet that all includes a major hit from CapEx. The company is easily funding growth without affecting profitability. This is truly a rare find, esepcially in an industry that is suffocating from a general societal move away from fast food.

In our final time series chart we plot Capital Expenditures (TTM US$ Millions) in the blue bars.


Click Here to Interact With This Chart

Summary
Chipotle has the second strongest fundamentals of any Consumer Services company of any size in North America. Revenue, earnings and free cash flow are at all-time highs as operating margins increase even as CapEx is expanding rapidly. The company shows nearly 17% growth in revenue in restaurants that are one year or older, which is totally absurd relative to peers. That same store sales growth is the envy of every consumer services firm, food or otherwise. The company is opening new stores and they are successes, but it isn't living and growing only by that expansion, which means a risk of plateau as the company scales seems quite low, at least for the near-term. Even further, CMG is growing margins for existing stores, which means the growth in revenue is doubly impactful to the bottom line as the company raises prices and no one seems to care.

Valuation calls are in as CMG trades at a 41.6 P/E which is high, but right in line with other fast growing restaurant chains Papa John's (PZZA) at a 42 P/E and Domino's Pizza, Inc. (DPZ) at a 39 P/E. The risk is a slowdown (a further slowdown). As we have seen time and time again, when growth companies miss forecasts, the stock prices are annihilated (See Twitter). For now, CMG looks essentially perfect. While risks lie ahead for all companies, this company shows enormous promise.