chipotle analysis 2.0
TRANSCRIPT
CHIPOTLE ANALYSIS
Peterson Partners Case CompetitionKellon Furber, Erik Paustenbaugh, Nick Larson, Michael Edis
March 25th, 2016
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I. Executive Summary
II. Chipotle Overview
III. Industry Overview
IV. Valuation
i. LBO Analysis
ii. DCF Analysis
iii. Comparable Company Analysis
iv. Precedent Transactions Summary
V. Conclusion Summary
Agenda
3
I. Executive Summary
Sources: IBIS World, CapIQ 4
• Chipotle is a leading fast-casual restaurant chain
that established the dining sector offering various
Mexican dishes
• Unique branding and marketing strategy have
enabled company to experience strong growth
• Recent E. Coli, Norovirus and Salmonella outbreaks
have brought greater scrutiny and dented share
price
• Healthy Eating & Food Preparation Awareness
• Increasing health conscious population
• Consumer Spending
• Strong markets over the past 5 years have
contributed to a rise in restaurant sales
• Agricultural Price Index
• Greater sensitivity to commodity price
changes than industry norm due to organic
and high cost ingredients
Overview Key Drivers
Valuation Conclusion
• We recognize that Chipotle has experienced high
growth and has been a leader in the fast casual
dining space
• However due to recent health scares, and the
development of many close substitutes we feel that
Chipotle is still being over valued by the market
• We feel that in the coming years Chipotle will lose
its valuable market share to competitors who do not
face the same threats.
Executive Summary
$12.6 Billion at 13.9x EV/EBITDA
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II. Chipotle Overview
Sources: IBIS World, CapIQ 6
Background
• Founded 1993 in Denver, Colorado; IPO—2006
Product
• Simple 4 item menu; Natural Ingredients
Geography
• 2000+ Locations
• 59,000+ employees
• US, Canada, UK, Germany & France
Steve Ells — Co-Chief Executive Officer & Chairman
• 2014 Compensation: 28million
Montgomery Moran — Co-Chief Executive Officer
• 2014 Compensation: 28million
John Hartung — Chief Financial Officer
Mark Crumpacker — Chief Creative & Development
Officer
Company Overview Management Team
TTM EV/EBITDAR & EV/EBITDA of Comparables Revenue v. Revenue Growth ($mm)
Chipotle Overview
$-
$1,000.0
$2,000.0
$3,000.0
$4,000.0
$5,000.0
2009 2010 2011 2012 2013 2014 20150%
5%
10%
15%
20%
25%
30%
Revenue Revenue Growth YoY
Revenue Revenue Growth YoY
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
30.0x
35.0x
40.0x
45.0x
Chipotle PaneraBread
Jack inthe Box
Zoe'sKitchen
ShakeShack
Noodles& Co.
Potbelly HabitBurger
EV/EBITDAR
EV/EBITDA
Sources: IBIS World, CapIQ 7
• Simple menu
• Natural ingredients
• Restaurant design and layout
• Performance based culture
• Strong brand; Loyal customers
• Higher cost ingredients
• Limited menu
• Dependency on word of mouth
Strengths Weaknesses
Opportunities Threats
• Health conscious trend
• Global markets
• Franchise model
• Domestic growth
• Supply chain constraints
• Increased competition
• Close substitutes
• Economic downturn
• Virus outbreaks
SWOT Analysis
8
III. Industry Overview
Sources: IBIS World, CapIQ 9
• $782.7 Billion Restaurant Industry Sales
• 1 Million+ Restaurant locations in the US
• 10% Restaurant workforce of total US jobs
• 1.7 Million new jobs created by 2026
Restaurant Sales Growth
2016: 5%2026: 1.9%GDP: 2.2%Chipotle: 6%
Facts at a Glance Market Growth
Market Characteristics Market Size
• Restaurant industry is in its mature phase
• Industry growth for next 10 years forecasted at
1.9%, GDP at 2.2% • Smartphone allow faster delivery and reduced costs
• Restaurant industry is cyclical with demand tied to
income, unemployment rates and agricultural
prices
• Health trends are major determinants of higher than
average growth
Industry Overview
*Projected Restaurant Employment
Sources: IBIS World, CapIQ 10
Restaurant Types
Market Trends
• Healthy Eating
• Food Preparation Awareness
• Social Farming
Practices
• Animal Welfare
• Accountability
Industry Overview
Restaurant Type Avg. Check Size Description
Quick Service $5-6Emphasize speed of service, no table-service, often have drive through
service
Fast Casual $7-8 No table service, generally fast serving time yet food is higher than QSR
Casual Dining $13-14 Table service, casual atmosphere, full bar
Mexican Fast Casual Fast Food
Qdoba Panera Bread Co. McDonald's Corp.
Fresh Enterprises Jack in the Box Inc. Yum! Brands, Inc.
Mswg, LLCZoe's Kitchen, Inc. Restaurant Brands
Rubio's GrillShake Shack Inc. Domino's Pizza
Costa Vida Noodles & Company Wendy’s
Café Rio Potbelly Corporation Sonic Corp.
The Habit Restaurant Popeyes
Cosi Inc. Bojangles' Inc.
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IV. Valuation
Sources: IBIS World, CapIQ 12
Valuation Overview
• Through a comprehensive analysis involving Discounted Cash Flow Analysis, LBO Analysis,
Comparable Company Analysis, and Precedent Transaction Analysis, we computed a valuation for
the Company at $12.6 Billion with a Enterprise Value/EBITDA multiple of 13.8x
$12.6 Billion
13.8x EV/EBITDA
Sources: IBIS World, CapIQ 13
Comparable Company Analysis
Comparable Company Analysis
Company
Enterprise
Value
LTM
Revenue
LTM
EBITDAR LTM EBITDA EV/Revenue EV/EBITDAR EV/EBITDA
Chipotle Mexican Grill, Inc. $13,018.0 $4,501.2 $1,137.4 $907.2 2.9x 11.4x 14.4x
Tier I: Fast Casual Peers
Panera Bread Company 5,359.7 2,681.6 527.4 380.8 2.0x 10.2x 14.1x
Jack in the Box Inc. 3,028.4 1,542.5 N/A 299.0 2.0x N/A 10.1x
Zoe's Kitchen, Inc. 782.6 226.6 32.8 19.7 3.5x 23.9x 39.7x
Shake Shack Inc. 467.3 190.6 31.7 16.5 2.5x 14.8x 28.4x
Noodles & Company 420.1 455.5 78.2 36.4 0.9x 5.4x 11.6x
Potbelly Corporation 320.3 372.8 73.2 34.5 0.9x 4.4x 9.3x
The Habit Restaurants, Inc. 279.7 230.6 37.2 24.9 1.2x 7.5x 11.2x
25th 0.9x 5.1x 10.1x
Median 2.0x 8.8x 11.6x
75th 2.5x 17.0x 28.4x
Tier II: Fast Food Peers
McDonald's Corp. $128,311.5 $25,413.0 $10,749.6 $8,910.6 5.0x 11.9x 14.4x
Yum! Brands, Inc. 35,310.2 13,105.0 3,933.0 2,902.0 2.7x 9.0x 12.2x
Restaurant Brands International Inc. 21,945.5 4,052.2 1,578.6 1,562.9 5.4x 13.9x 14.0x
The Wendy's Company 4,901.6 1,870.3 479.1 383.2 2.6x 10.2x 12.8x
Sonic Corp. 2,040.5 612.0 0.0 166.6 3.3x N/A 12.2x
Popeyes Lousiana Kitchen, Inc. 1,262.6 259.0 91.9 84.0 4.9x 13.7x 15.0x
Bojangles' Inc. 820.0 488.2 101.8 67.6 1.7x 8.1x 12.1x
25th 2.6x 8.7x 12.2x
Median 3.3x 11.1x 12.8x
75th 5.0x 13.8x 14.4x
Sources: IBIS World, CapIQ 14
Comparable Company Analysis
Fast Casual – Earnings Growth vs. EV/EBITDAR Fast Food – EBITDA Margins vs. EV/Revenue
• “Fast Casual” peers are being valued based on growth
• “Fast Food” peers are being valued based on operating margins
Sources: IBIS World, CapIQ 15
Precedent Transaction Analysis
Precedent Transaction Analysis
Implied Enterprise Value Range of $6.4 - $8.4 billion
Transaction Target
($ in millions) Value EBITDA EV / Revenue EV / EBITDA
Average 2,054.1 149.2 1.4x 11.7x
Minimum 113.0 11.1 0.4x 7.0x
25th Percentile 215.2 27.3 0.7x 8.7x
Median 466.8 45.0 0.8x 9.2x
75th Percentile 1,611.2 176.7 1.7x 16.2x
Maximum 13,373.9 785.6 4.4x 20.2x
Implied
($ in millions) EV
Average $10,655.0
Minimum $6,359.1
25th Percentile $7,924.0
Median $8,373.0
75th Percentile $14,714.0
Maximum $18,288.2
($ in millions) Transaction TargetDate Target Acquirer Value EBITDA EV / EV / EBITDA
06/04/2015 Biglari Holdings Inc. Biglari Capital 258.9 54.3 1.2x 20.2x
09/29/2014 Einstein Noah Restaurant Group BDT Capital 466.8 45.0 1.1x 10.3x
08/26/2014 Tim Hortons Inc. Restaurant 13,373.9 785.6 4.4x 17.4x
05/15/2014 Red Lobster Seafood Co., LLC Golden Gate 2,113.0 229.0 0.8x 9.2x
07/12/2012 Yard House USA, Inc. Darden 585.0 39.0 2.2x 15.0x
06/25/2012 J. Alexander's Holdings, Inc. American Blue 113.0 11.1 0.6x 9.0x
05/22/2012 Benihana Inc. Angelo, Gordon 295.7 30.2 0.8x 9.1x
05/01/2012 P.F. Chang's China Bistro, Inc. Centerbridge 1,109.3 124.3 0.8x 8.5x
02/07/2012 Real Mex Restaurants, Inc. Tennenbaum 171.6 24.5 0.4x 7.0x
Sources: IBIS World, CapIQ 16
Discounted Cash Flow Model
Assumptions and Multiples WACC Calculations
Discounted Cash Flow
($ millions) 1 2 3 4 5
2013 2014 2015 2016E 2017E 2018E 2019E 2020E Terminal
Revenue $3,214.59 $4,108.27 $4,501.22 $4,861.32 $5,250.23 $5,670.24 $6,123.86 $6,613.77 WACC
EBITDAR 814.9 1031.6 1137.4 1118.1 1307.3 1377.9 1482.0 1593.9
EBITDA 635.5 828.3 907.2 879.9 1055.3 1111.4 1200.3 1296.3
EBIT 543.1 627.4 776.4 676.7 840.1 882.4 955.6 1033.9
Tax 38% 38% 38% 38% 38% 38% 38% 38%
EBIT*(1-t) 336.7 389.0 481.4 419.6 520.9 547.1 592.5 641.0
+Depr. 96.1 110.5 130.4 159.4 167.9 177.9 189.5 202.8
-CAPEX 257.4 267.4 288.8 311.9 336.8 363.8
-ΔNWC 15.8 (1.9) (10.4) (11.3) (12.2) (13.1)
FCFF 313.5 410.5 424.4 457.4 493.3 12,522.9
PV 288.0 346.5 329.2 325.9 322.9 8,199.0
E/V 100.00% D/V 0.00%
Ke 8.84% Kd 0
Rf 1.88% T 38.00%
Rp 6.00%
Beta 1.16
WACC 8.84%
Terminal Growth 1%
Revenue Multiple 2.9x
EBITDA Multiple 15.0x
EBIT Multiple 16.8x
EBITDAR Multiple 12.0x
Sources: IBIS World, CapIQ 17
EV/EBIT vs. WACC Sensitivity EV/Revenue vs. WACC Sensitivity
Discounted Cash Flows - Sensitivities
EV/EBITDA vs. WACC Sensitivity EV/EBITDAR vs. WACC Sensitivity
WACC
$9,811.6 7.00% 7.50% 8.00% 8.50% 9.00% 9.50%
12x 9,606 9,222 8,856 8,508 8,176 7,860
13x 10,265 9,851 9,457 9,081 8,724 8,383
14x 10,924 10,480 10,057 9,655 9,271 8,906
15x 11,583 11,109 10,658 10,228 9,819 9,430
16x 12,242 11,738 11,258 10,801 10,367 9,953
17x 12,901 12,367 11,858 11,375 10,914 10,476
18x 13,560 12,996 12,459 11,948 11,462 10,999
19x 14,219 13,625 13,059 12,521 12,009 11,522
20x 14,878 14,254 13,660 13,095 12,557 12,045
WACC
$9,811.6 7.00% 7.50% 8.00% 8.50% 9.00% 9.50%
6.0x 6,560 6,315 6,081 5,858 5,645 5,442
7.0x 7,370 7,088 6,819 6,563 6,318 6,086
8.0x 8,181 7,861 7,557 7,268 6,992 6,729
9.0x 8,991 8,635 8,296 7,973 7,665 7,372
10.0x 9,801 9,408 9,034 8,678 8,338 8,015
11.0x 10,612 10,181 9,772 9,383 9,012 8,658
12.0x 11,422 10,955 10,511 10,088 9,685 9,301
13.0x 12,232 11,728 11,249 10,793 10,358 9,945
14.0x 13,042 12,502 11,987 11,498 11,031 10,588
15.0x 13,853 13,275 12,725 12,202 11,705 11,231
WACC
$9,811.6 7.00% 7.50% 8.00% 8.50% 9.00% 9.50%
13.0x 8,531 8,196 7,877 7,573 7,283 7,007
14.0x 9,057 8,698 8,356 8,030 7,720 7,424
15.0x 9,583 9,199 8,835 8,487 8,157 7,842
16.0x 10,108 9,701 9,314 8,945 8,593 8,259
17.0x 10,634 10,203 9,793 9,402 9,030 8,676
18.0x 11,159 10,704 10,271 9,859 9,467 9,093
19.0x 11,685 11,206 10,750 10,317 9,904 9,510
WACC
$9,811.6 7.00% 7.50% 8.00% 8.50% 9.00% 9.50%
1.0x 5,061 4,883 4,714 4,553 4,399 4,252
1.5x 6,742 6,488 6,246 6,016 5,796 5,586
2.0x 8,423 8,092 7,778 7,478 7,193 6,921
2.5x 10,104 9,697 9,310 8,941 8,590 8,255
3.0x 11,785 11,301 10,841 10,403 9,987 9,590
Sources: IBIS World, CapIQ 18
Leveraged Buyout
Required Purchase Prices with 4-year EBITDA Exit
Multiples
Required Purchase Prices with 5-year EBITDA Exit
Multiples
Leveraged Buyout
IRR 15x 16x 17x 18x 19x 20x
25% 12,896 13,429 13,937 14,468 14,997 15,551
26% 12,700 13,214 13,728 14,242 14,756 15,258
27% 12,510 13,008 13,506 14,004 14,502 15,000
28% 12,327 12,810 13,292 13,775 14,258 14,740
29% 12,159 12,620 13,087 13,555 14,023 14,491
30% 11,983 12,437 12,890 13,344 13,797 14,251
IRR 15x 16x 17x 18x 19x 20x
25% 11,836 12,265 12,672 13,093 13,537 13,962
26% 11,633 12,041 12,449 12,857 13,264 13,672
27% 11,438 11,830 12,222 12,614 13,006 13,398
28% 11,252 11,629 12,006 12,382 12,759 13,136
29% 11,074 11,437 11,799 12,162 12,524 12,887
30% 10,905 11,254 11,602 11,951 12,300 12,649
Debt Level 7x EBITDA = 6,350
• 1st Lien Term Loan 4.5x EBITDA, 5.75% = 4,082
• Senior Notes 2.5x EBITDA, 8.5% = 2,268
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V. Conclusion
Sources: IBIS World, CapIQ 20
• Perform a full valuation of Chipotle Mexican Grill, Inc.
Objective
Valuation
• We recognize that Chipotle has experienced high growth and has been a leader in the
fast casual dining space
• However due to recent health scares, and the development of many close substitutes we
feel that despite the recent correction, Chipotle is still being over valued by the market
• We feel that in the coming years Chipotle will lose its valuable market share to
competitors who do not face the same threats
Conclusion
21
VI. Appendix
Sources: IBIS World, CapIQ 22
Regression Analysis
Sources: IBIS World, CapIQ 23
Regression Analysis
Sources: IBIS World, CapIQ 24
Regression Analysis