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April 20, 2012

Consumer Goods

Chipotle Mexican Grill


Ticker: CMG

Recommendati on: HOLD

Current Price: $432.03

Implied Price: $403.77

Investment Thesis
Key Statistics
52 Week Price Range
50-Day M oving Average

$413.40
0.81

Dividend Yield

N/A

5-Year Revenue CAGR

Chipotle Mexican Grill is a firm with a strong business model, focused


growth strategies, and impressive brand image that it has successfully
leveraged into consistent growth over the past five years.

CMG has experimented implementing its business model into other cuisines
and if successful, could introduce Chipotle to new markets.

CMGs Food With Integrity initiative appeals to growing consumer


preferences concerning responsibly raised ingredients, healthy menu
options, and environmental sustainability.

We recommend a hold because the market has already priced in much of the
firms domestic growth, but aggressive international expansion presents a
tremendous upside.

$432.11 - $439.42

Estimated Beta

M arket Capitalization

13.535B

44.70%

Trading Statistics
Diluted Shares Outstanding

31.35 million

Average Volume (3-M onth)

.484 million

Institutional Ownership

Chipotle Mexican Grill (5- Year)

100.7%

Insider Ownership

1.68%

EV/EBITDA

28.13x

$500.00
$450.00
$400.00

Margins and Ratios

$350.00

Gross M argin

25.96%

$300.00

EBITDA M argin

20.97%

$250.00

Net M argin

20.57%

$200.00

$150.00

Debt to Enterprise Value

N/A

$100.00

Leverage Ratio

N/A

$50.00
$0.00
Nov-08

Mar-09

Jul-09

Nov-09

Mar-10

Price

Jul-10
50-Day Avg

Nov-10

Mar-11

Jul-11

Nov-11

Mar-12

200-Day Avg

Covering Analysts: Jacob Friedman & Jack Roeder


1

University of Oregon Investment Group

University of Oregon Investment Group

Date of Presentation

Business Overview
Steve Ells, a graduate of the Culinary Institute of America, founded Chipotle
Mexican Grill, Inc. (CMG) in 1993 in Denver, Colorado. CMG offers a focused
menu of burritos, tacos, burrito bowls, and salads in its 1,230 company -operated
restaurants across the Unites States, Canada, and the UK. The 1,230 restaurants
also includes one ShopHouse Southeast Asian Kitchen, which is a new concept
restaurant that follows the Chipotle format but serves cuisine inspired by
Thailand, Malaysia, and Vietnam. The first ShopHouse was opened in 2011, and
CMG plans to open another in 2012 due to the success of the first restau rant.
The ShopHouse test concept will be discussed in greater detail later in this
section.

Number of Restaurants
1200

Number of Restaurants

1000
800
600

Chipotle Mexican Grill

400
200

0
2008

2009

Comparable

2010

2011

New

Average Revenue per Restaurant

Average Revenue (millions of $)

1.8
1.6
1.4

1.2
1

The company began as a single restaurant near the University of Denver


campus, where it quickly became successful. In 1998, McDonalds made an
initial investment in the firm, and eventually became CMGs largest investor by
2001. This involvement by McDonalds enabled Chipotle to rapidly expand
from just 16 restaurants in 1998 to over 500 in 2005. McDonalds fully divested
from CMG in 2006 as part of an effort to focus more on its core business. CMG
went public on January 26, 2006 when it began trading on the NYSE under the
ticker symbol CMG.
Chipotle manages and operates restaurants in six different regions that combine
into only one reporting segment. Revenue growth is driven by increasing repeat
customer visits to existing restaurants and through the addition of new
restaurants. Once a restaurant has entered its thirteenth month of operation, it is
called a comparable restaurant. Chipotle analyzes its performance and projects
its future growth by dividing its restaurants into two categories: comparable
restaurants and new restaurants. Data concerning the past performance of these
two resta urant categories can be found to the left. Increasing comparable
restaurant revenue is important to CMG because comparable restaurants tend to
have higher margins than new restaurants.

ShopHouse Southeast Asian Kitchen

0.8

CMG believes that the format used in Chipotle restaurants can be successfully
adapted to other cuisines. This special format includes:

0.6
0.4
0.2
0
2008

2009
Comparable

2010
New

2011

Finding the best sustainably raised ingredients.


Preparing and cooking food using classical methods in front of customers.
Serving customers in an interactive format by great people.

As noted above, CMGs first attempt at extending the Chipotle restaurant model
is ShopHouse Southeast Asian Kitchen. The first was opened in 2011, and
serves rice or noodle bowls and banh mi sandwiches. Even though CMG plans
to open an additional ShopHouse in 2012, the companys focus remains on
building and developing the Chipotle brand.
Overall, CMG is a firm that is very conscious of the value of its culture and
brand, and makes strategic decisions to maintain and leverage this brand equity
to grow in deliberate ways.

UOIG 2

University of Oregon Investment Group

Date of Presentation

Strategic Positioning
CMG operates in the limited-service restaurant industry, which includes a
number of fast-food restaurants and grocery stores. However, CMG is
determined to change the way consumers think about fast food. Inspired by
attributes of fine dining, CMG employs a number of strategies that set it ap art as
a limited-service restaurant. The following subsections highlight a few of
CMGs core strategies for differentiating their brand.

Food With Integrity


CMGs core philosophy of Food With Integrity goes deeper than offering its
customers high quality ingredients. Chipotles focused menu allows the firm to
carefully examine where each of its ingredients comes from and select the best
suppliers for the CMG and its customers. This includes naturally raised meat (no
growth hormones or antibiotics), sustainably/organically-grown produce, and
dairy prod ucts from cows with access to pastures.
CMG has faced some challenges while pursuing its Food With Integrity
initiative because these products can become extremely expensive or can be
abandoned by farmers altogether during difficult economic times. For example,
some of its restaurants served conventionally raised chicken and steak during the
beginning of 2011, but all restaurants were serving naturally raised meat at
December 31, 2011. In spite of these issues, Chipotle is fully dedicated to
providing its customers with high quality ingredients that are raised or grown
responsibly.

Culture of Top Performers


Chipotle further seeks to enhance its customers experience by hiring the best
employees for all positions within the company. CMG attracts and retains
quality people by offering attractive long-term career opportunities.
Impressively, more than 97% of salaried management and over 98% of hourly
management have come from internal promotions. Of these res taurant managers,
the best are promoted to the title of Restaurateur, where they are capable of
earning additional bonuses for empowering and developing other employees.
Restaurateurs are granted increasing responsibility over additional restaurants
until they prove that they show that they are capable of producing highly
motivated, top-performing teams. At this point, Restaurateurs can be promoted
to Apprentice Team Leaders where they are granted further responsibilities and
employee benefits. When developing management and in-store operations,
CMG stresses the importance of method and culture, the front line of employees
that customers interact with, and sticking to the basics that have made the
company successful.

Close Relationships with Suppliers


Because high quality, responsibly produced ingredients that can be delivered at
reasonable prices are vital to Chipotles philosophy, the development of close
relationships with suppliers is an integral component of its strategy. As a result,
suppliers are examined closely and selected carefully based on their ability to
comply with the strict requirements of CMG. Once a supplier is chosen, CMG
seeks to build a longstanding, mutually beneficial relationship so that it can
reliably source its ingredients and other inputs.

UOIG 3

University of Oregon Investment Group

Date of Presentation

Business Growth Strategies


CMG has experienced substantial growth over the past five years. This has been
driven by increasing revenue in existing restaurants and by opening new
restaurants around the United States and some abroad. As a result, CMGs
growth has been entirely organic, and the company plans to continue this trend
in the future.
CMGs growth strategies are focused and deliberate, allowing the firm to
maintain control of its valuable brand image and build a strong following of
loyal customers in attractive locations. The following sections will discuss
Chipotles growth strategies in terms of domestic operations, international
operations, and business model extension to new brands.

Domestic Growth
This continues to be CMGs main growth focus. With strong new restaurant
openings over the past five years, CMG expects to open an additional 155-165
restaurants in 2012. Management has also stated that there is no shortage of
quality locations in the United States, so market saturation is not an issue
Chipotle is facing at this time.
It is also important to note that many of the new restaurants that CMG plans to
open are what the company calls A Model restaurants. A Model restaurants
are restaurants opened in secondary trade area locations with attractive
demographics and lower investment and occupancy costs.

Geographic Distribution of
CMGs Restaurants

Country
United States
Canada
UK

Number of Restaurants
1,226
2
2

In addition to opening new restaurants domestically, it is also important for


CMG to grow existing (comparable) restaurant revenue. CMG does this by
increasing repeat customer visits through advertising, employee training, and
exemplary customer service. Chipotle has also introduced its Farm Team, which
is a customer loyalty program that is slightly different. Instead of incenting
customers to purchase Chipotle products as often as possible, the program
encourages members to be ambassadors for the Chipotle brand by personifying
the companys values and mission (Food With Integrity).

International Growth
CMGs international growth strategy is still under development. Curren tly,
CMG has two restaurants in Canada, two restaurants in Great Britain, and plans
to open one restaurant in Paris, France in 2012. These restaurants have been
successful in their respective markets, and Chipotle plans to continue expanding
abroad. However, this process has been slow, steady, and focused because the
company does not want to make any mistakes that may damage its brand image
on a global scale. Overall, international growth expansion remains a huge
growth opportunity for Chipotle in the future.

Business Model Extension


CMG believes that its business model and philosophy are extendable to a
number of different restaurant types and cuisines. This can be seen through the
introduction of the first ShopHouse Southeast Asian Kitchen in Washin gton
D.C. in 2011. This restaurant has been very successful, and CMG plans to open
a second ShopHouse in 2012. However, CMG has not projected that ShopHouse
will contribute to the companys overall growth in the near future, as it is still a
test concept. As a result, growth as a result of business model extension is not
part of CMGs current growth strategy, but may play a major role as the

UOIG 4

University of Oregon Investment Group

Date of Presentation
Chipotle format gains popularity and ShopHouse shows continued signs of
success.

Industry
Types of Limited-Service Restaurants

Overview
CMG competes in the limited-service restaurant industry (also known as the fast
food industry). This industry includes: cafeterias and buffets, drive-thru limitedservice restaurants, off-premises (take-out) limited-service restaurants, and onpremises limited-service restaurants. At limited-service restaurants, customers
pay for their food before consuming it. Additionally, customers often have the
option of eating their food at the restaurant, taking it to go, or purchasing it
through a drive-thru.

Cafeterias/Buffets

Drive-thru

Off-premises

On-premises

Industry Revenue

As a whole, this industry has struggled over the past four years as the recession
hurt consumer spending. Consumers were less likely to eat out at fast food
restaurants, and decided to eat at home instead. In 2010 and 2011, the economy
has displayed signs of recovery, including strong increases in consumer
spending. Overall revenue growth in the limited-service restaurant industry has
seen growth in line with this increase in consumer spending. The following
sections will discuss the key drivers and analyze the degree of competition in
this industry.

$172,000

Industry Revenue (millions of $)

$170,000
$168,000

$166,000
$164,000
$162,000
$160,000
$158,000
$156,000

Key Drivers

$154,000

The three key macroeconomic drivers of success in the limited-service


restaurant industry are consumer spending, consumer preferences, and
commodity prices.

$152,000
2007

2008

2009

2010

2011

Consumer Spending
The recession caused an increase in unemployment, which resulted in a
significant decrease in consumer spending. This had a largely negative effect on
the limited-service restaurant industry, resulting in an average annual decrease
in revenue of 1.6% over the past five years. As the United States (and the rest of
the global economy) emerges from the recession, consumer s pending is
projected to increase. This will have a positive effect on players in the limited service restaurant industry, with a projected 2012 increase in revenue of around
2.1%, a growth rate that is expected to continue through 2016.

Consumer Spending
11500

Consumer SPending (billions of $)

Business models tend to be simple, with firms either franchising or directly


owning the restaurants they operate. Some companies within the industry own a
number of different limited-service restaurant chains, which often offer different
types of cuisines. Additionally, many of the larger firms have seen high levels of
restaurant saturation in the States, and have looked abroad to sustain and
increase growth.

11000
10500
10000

9500
9000
8500

8000
2008A

2011A

2014E

2017E

Consumer spending also reflects changes in disposable income and consumer


sentiments. Both of these drivers are expected to slowly increase in the coming
years. As the consumer sentiment index increases, consumers become more
confident spending more of the disposable income. Currently, the transition
from a recessionary period (where many consumer chose to eat at home) to a
recovery period will benefit the limited-service restaurant industry because these
restaurants offer low cost, convenient meals. Further increases in th e consumer
sentiment index will cause a shift toward more expensive, fancier restaurant
choices.

UOIG 5

University of Oregon Investment Group

Date of Presentation
Consumer Preferences
As with almost all industries in the consumer goods sector, the limited-service
restaurant industry is highly dependent on the preferences of consumers.
Recently, consumers have shown a preference for more health cons cious and
internationally varied food options at limited-service restaurants.
Consumers are becoming increasingly aware of the unhealthy nature of many
fast-food chains, and are demanding more healthy options. Even though many
limited-service restaurants have responded to this trend by offering more healthconscious items on their menus, this trend has had an overall negative impact on
the typically unhealthy limited-service restaurants. However, consumer diets
continue to be poor, and the healthy eating index (measured as a percentage
reflecting the degree to which Americans stick to the consumption guidelines set
out by the USDA) is expected to continue decreasing in the near future.

74%
73%
73%
72%

72%
71%
71%

70%
2008A

2011A

2014E

2017E

In spite of this trend, consumer awareness about health issues surrounding fast food restaurants is expected to be a significant trend in the industry, and the
most successful limited-service restaurants will be able to successfully adapt
their brand images to align with the health preferences of consumers. This has
led to the emergence and popularity of the fast-casual segment of the limitedservice restaurant industry. Customers of fast-casual restaurants still seek
convenient and affordable meals, but tend to care more about the origin and
preparation of the food.
Limited-service restaurants have also diversified into a variety of specialty and
ethnic cuisines in order to match the preferences of consumers. For example,
McDonalds has begun serving specialty coffee drinks in their fast-food
restaurants. Much of this success has been found in international markets
(especially China), and these specialty and ethnic options have largely
outperformed the rest of the industry.
Food Commodity Prices
The limited-service restaurant industry is highly dependent on commodity prices
because food ingredients are the main input for their products. As a result, many
of the players in this industry enter into contracts and strong supplier
relationships in order to ensure a reliable source of inputs for their operations.
Increasing global demand has caused commodity prices to increase on average,
and this squeezes margins for the industry as a whole. The companies within the
industry that are able to leverage their brand equity to increase prices without
losing business will be better able to cope with rising commodity prices.

Producer Price Index


7
6
5
4

Percent Change

Percent of Average Diet within Guidelines

Healthy Eating Index

3
2

1
0
-1
-2
-3
-4

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

It is difficult to project how commodity prices will behave in the future for the
purposes of valuation. Although commodity prices may rise in general, not all
commodity prices move in the same way. As a result, a company that is exposed
to a large number of commodities may experience moves in the price of some
commodity that are offset by an opposite movement in the price of a different
commodity.

Competition
Competitors in the limited-service restaurant industry include cafeterias and
buffets, on-site limited-service restaurants, drive-thru limited-service
restaurants, and off-premises limited-service restaurants. The major players in
this industry include McDonalds Corporation, Yum! Brands, Inc., Doctors
Associates, Inc. (private owner of Subway), Wendys International, Inc., and
Burger King Corporation.

UOIG 6

University of Oregon Investment Group

Date of Presentation
The major bases of competition between players in the limited -service restaurant
industry are price, location, variety, brand, and service. Since patrons of fastfood restaurants usually seek quick, convenient, and cheap eating options, the
limited-service restaurants that can deliver these attributes the most profitably to
consumers are the most successful.

Market Share Breakdown

McDonald's

Yum!

Docotr's Associates

Wendy's

Burger King

Chipotle

Other

Companies also benefit from brand awareness and equity, which is increased
through effective marketing and franchising. Franchising (or operating as a
multi-establishment restaurant such as CMG) has become increasingly important
in this industry, especially through the recession, because it allows firms to
reach economies of scale and increase profitability. In 2010, franchised and
multi-establishment companies accounted for 65% of industry revenues, while
only accounting for around 10% of total establishments.

In general, concentration within the limited-service restaurant industry is very


low. In fact, approximately 48% of operators within the industry are small
businesses with nine or fewer employees , and the five largest firms in the
industry only control approximately 38% of revenues. Concentration within the
industry has increased recently as firms attempt to increase profitability, market
share, and financial flexibility. For example, Wendys and Arbys merged in
2008, but Wendys sold off Arbys to a private equity firm in 2011. Private
equity firms have also acquired Burger King and California Pizza Kitchen in
recent years. Overall, industry concentration is expected to increase slightly over
the next five years.

Management and Employee Relations


CEO Steve Ells

Steve Ells, Chairman and Co-CEO


Mr. Ells founded Chipotle in 1993. Prior to Chipotle, Ells worked at Stars
restaurant in San Francisco for 2 years. Ells was the vision behind Chipotle
success, asserting that food served fast does not have to be low quality. Ells
graduated from the University of Colorado with a Bachelor of Arts degree in Art
History. He is also a graduate of the Culinary Institute of America. His 2010
salary was approximately $1.2 million.

Montgomery F. Moran, Co-CEO


Mr. Moran was appointed to Co-CEO in 2009 after serving as COO for 4 years.
He previously served as CEO of a law firm in Denver. Moran was the initiator
of the Restaurateur program. Moran received his Bachelor of Arts in
Communications from the University of Colorado. He later obtained a law
degree from Pepperdine University. His 2010 salary was approximately $1
million.

John R. Hartung, CFO


Mr. Hartung has been the CFO since 2002. Prior to Chipotle, Hartung held
several management positions at McDonalds Corp. In addition to the finances,,
Mr. Hartung overseas IT and security at Chipotle. He received a Bachelor of
Science Degree in Accounting and Economics as well as an MBA from Illinois
State University.

UOIG 7

University of Oregon Investment Group

Date of Presentation

Recent News
April 18, 2012 Can Chipotles earnings continue to fire up the stock?
(Forbes.com)
Analysts are cautious on their outlook for CMGs stock as rising food prices
may squeeze margins. As a result, many analysts have slightly lowered their
estimates for projected EBITDA. However, consistent new restaurant openings
are projected to continue into the future. Analysts are also still waiting to see
how well received Chipotle restaurants are in international markets because this
will be a huge growth opportunity for the company going forward.
April 18, 2012 Dark meat chicken surge spurs shortages, price hikes
(InvestorPlace.com)
Consumer preferences have shifted toward dark meat chicken (leg and thigh
meat) as a result of several cooking shows and other cooking media promoting
the taste. This has resulted in shortages in chicken leg meat, which has caused
price increases. Although CMG offers mostly dark chicken meat that appeals to
consumers, it is also required to pay slightly prices for this meat due to the
shortages.
April 16, 2012 Chipotle Mexican Grill Responds to FDAs Voluntary Plan to
Reduce Antibiotic Use in Farm Animals (InvestorPlace.com)
Chipotle applauded the FDAs recognition of the use of antibiotics to stimulate
growth in livestock. However, they would like to see more done to further
prevent the use. The plan also would require a prescription to put antibio tics in
feed. Ells, the founder, stated, These voluntary guidelines seem unlikely to
cause producers to change the practices that necessitate dependence on drugs in
the first place. Its an important first step, but stronger action will be needed to
bring about meaningful change in an industry where their practices are so well
entrenched.
This press release is an indicator of Chipotles ongoing effort to promote Food
with Integrity. Chipotle continues to promote its dedication to naturally raised
meet. It currently provides more naturally raised meats than any other restaurant
in the nation.

Catalysts

Global Industry Sales Breakdown

There are many macro and micro factors that can influence Chipotles future
cash flows. Below are both upside and downside catalysts that, if realized, will
affect the share price of Chipotle.

Upside

North America

Europe

Asia

South America

Oceania

Africa & Middle East

Successful restaurant launches abroad could significantly expand


CMGs potential market.
The ability for Chipotle to replicate its business model into other food
genres could catalyze growth in other markets (such as ShopHouse
Southeast Asian Kitchen).
If certain commodity (beef, chicken, produce) prices decrease, it could
expand margins.
Chipotles ability to establish relationships with high integrity suppliers
could allow them to reduce food costs while ensuring the ability to
obtain goods.

UOIG 8

University of Oregon Investment Group

Date of Presentation

Consumers becoming more conscious about the foods they eat could
bring attention to Chipotles Food With Integrity business model and
garner more loyal customers.

Downside

The rejection of Mexican Food or other offerings abroad could limit


CMGs international growth.
If Chipotle is unable to successfully integrate its business model into
other genres of food, its resources would be wasted and growth
hindered.
If commodity prices rise, Chipotles margins will be squeezed in the
current business model.
Because of Chipotles high standard of ingredients, they are bought
from small suppliers. If there are shortages, these suppliers may be the
first to deplete.

Comparable Analysis
Chipotle has many competitors, but few have experienced growth like Chipotle.
In selecting companies for the comparable analysis portion of the valuation, we
looked at growth estimates, size, product offering, risk to the market, and brand
image.
The multiples used were EV/EBIT and EV/EBITDA. We chose to weight only
the bottom line multiples because they are a better indicator of the companys
cash flows , and have a lesser chance of being influenced by our LTM numbers.

Panera Bread Co. (PNRA) 40%


Panera operates bakery-cafes in the United States and Canada. These cafes
provide a variety of baked goods, sandwiches, soups, salads, and other
complementary caf products. The company was founded in 1981 in Saint Luis,
Missouri and currently owns roughly 740 stores and franchises out an additional
801.
Panera Bread CO. was given the highest weighting of the comparables at 40%
because of its realized growth and its brand identity. Both Chipotle and Panera
strive to deliver fresh ingredients and provide simple goods at a relatively fast
rate. They are also located solely in the US & Canada and have yet to expand
into Europe, although they plan to when they find a suitable menu.

Starbucks Corp. (SBUX) 20%


Starbucks purchases and roasts whole bean coffee in the United States, Canada,
UK, China, Germany, and many other countries. Starbucks provides a variety of
coffees and espressos as well as fresh food items including pastries, sandwiches,
salads, and other items. Additionally, it sells branded bottled co ffees and ice
cream. Starbucks also owns several brands including Seattles Best Coffee and
Tazo tea.
Starbucks Corporation was given a weighting of 20% because of its brand image
and appeal to its target market. Starbucks offers a similar fresh ingredien t
environment and values its employees highly. Though much larger than
Chipotle, Starbucks realized significant growth over the last few years and has
successfully expanded abroad.

UOIG 9

University of Oregon Investment Group

Date of Presentation

Whole Foods Market, Inc. 25%


Whole Foods Market owns and operates rough ly 315 natural and organic
supermarkets around the United States, Canada, and UK. They offer groceries,
seaf ood, meat and poultry, produce, prepared foods, and supplements and
vitamins. They also sell a variety of specialty products.
Whole Foods Market, Inc. was chosen as a comparable because of its recent
growth, size, and commitment to organic and sustainable foods. Whole Foods is
not a direct competitor with Chipotle, however they share many of the same
business strategies. Whole Foods was given a weighting of 25%.

Jack in the Box, Inc. 0%


Jack in the Box, Inc. owns Jack in the Box and Qdoba Mexican Grill restaurants
across the United States. It owns and operates roughly 2,200 Jack in the Boxs
and 660 Qdoba restaurants. They acquired Qdoba in 2003.
Jack in the Box, Inc. was looked at as a comparable mostly because of the
Qdoba Mexican Grill branch. Qdoba is a pure play competitor to Chipotle, and
they operate in an extremely similar manner. Over the pas t few years, Qdoba has
significantly contributed to Jack in the Boxs growth. Jack in the Box was not
given a weighting because the majority owned fast-food chain dilutes the Qdoba
fraction.
The comparables analysis returns a large overvaluation. This is caused by
Chipotles extraordinary ability to expand with little pure competition. CMG has
been able to consistently increase restaurants and exploit the fast casual boom.
Additionally, there are few companies that have been able to replicate Chipotles
ability to retain customers in the fast casual market. The combination of rapid
growth, consistent cash flows, and the proven ability to retain customers has
given investors a reason to pay such a high price. Because there are few
companies experiencing such growth, and none in the fast casual industry, we
decided to weight comparables analysis 0% in our final valuation.

Discounted Cash Flow Analysis


In order to project future cash flows, we used management guidance, industry
analysis, and our own assumptions. Most projections were based on a percent of
sales.

Revenue Model
Projecting revenue required estimating future amounts for three different values:
new restaurants, average revenue per comparable restaurant, and average
revenue per new restaurant. The number of comparable restaurants was not
projected because it is simply the addition of the previous years number of
comparable restaurants and the previous years new restaurants.
New Restaurants
The number of new restaurants was projected based on management guidance
and historical values and growth rates. For 2012, management stated they would
add between 155 and 165 restaurants. From 2013 to 2014, we trended the
number of new restaurants slightly upward as Chipotle takes advantage of the
large number of A Model locations available. From 2015 until 2021, we trend
down the number of new restaurants as the market becomes more saturated and
less strong locations are available.

UOIG 10

University of Oregon Investment Group

Date of Presentation
Average Comparable Restaurant Revenue
For 2012, management expects average comparable restaurant revenue to
experience a percent increase in the mid-single digits. CMG will experience this
growth through customer loyalty (more repeat visits), increased advertising, and
exemplary customer service. Since historical increases have been roughly in line
with this mid-single digit growth, we simply trended down average comparable
restaurant revenue growth into the year 2021.

Projected Revenue Growth


$10,000.00

23.00%

$9,000.00
22.00%

$8,000.00

$7,000.00

21.00%

$6,000.00
$5,000.00

20.00%

$4,000.00
19.00%

$3,000.00
$2,000.00

18.00%

Average New Restaurant Revenue


Average new restaurant revenue growth has been both higher and lower than
average comparable restaurant revenue growth in recent years. However, as the
Chipotle brand continues to gain strength, more talented Restaurateurs open new
restaurants, and more A Model locations are opened, the average new store
revenue is likely to grow slightly faster than already existing comparable
restaurants. As a result, we project average new restaurant percent revenue
growth to be slightly higher than average comparable restaurant revenue in
2012, and then trend it down into the year 2021.

$1,000.00
$0.00

17.00%

Total Revenue

EBITDA Margin

Cost of Goods Sold Model


Chipotles Restaurant operating costs include Food, beverage, and packaging,
Labor, Occupancy Costs, and Other Operating Costs. Each expense was
projected out separately and can be seen in Appendix 4.
Certain key ingredients are subject to supply shortages, causing many of
Chipotles ingredients to incur a price increase. CMGs commitment to Food
With Integrity sometimes creates limited source suppliers and thus, it will be
difficult to avoid an increase in its Food, beverage, and packaging during times
of certain commodity price increases. For example, Chipotle is expecting to see
price hikes in beef, chicken, rice and beans while they are more optimistic about
avocados, dairy, and produce. We project Food to increase slightly in the short
term but eventually level out at a conservative rate of 32.85% of revenue.
Labor and Other Operating Costs gain leverage by an increase in sales and
therefore, are declining as a percentage of revenue going forward. Other
Operating Costs were slightly higher than normal in 2011 due to an investment
in marketing, and 2012 will be similar. However, over a longer period, we
expect Other Operating Costs to be around 10.75% of revenue.
Occupancy costs also benefit from an increas e in sales as it is partially fixed,
however as Chipotle leans toward more A-Model restaurant location, the ability
to decrease this cost will become harder.

General & Administrative Expense


Management states that they are maintaining an effort to grow G&A at a
slower rate than sales growth. However, the accounting charge of issuing
noncash stock compensation has led to a slightly higher G&A expense in 2011
and will remain in 2012. Additionally, in 2012 CMG will host its biennial All
Manger Conference, which will lead to an additional increase in G&A.

Tax Rate
CMGs tax rate has historically been in the high 38% range. Going forward,
however, CMG expects its tax rate to be in the low 39% due to the expiration of
certain legislation (HIRE Act) and tax credits. The tax rate is subject to change
if Congress renews the Act or issues additional tax credits, but we projected
CMGs tax rate at 39.3%.

UOIG 11

University of Oregon Investment Group

Date of Presentation

Working Capital
Current Assets and Current Liabilities were projected to remain roughly the in
line as a percent of revenue going forward. Where applicable, certain accounting
ratios were used to project line items. Days Sales Outstanding and Days Payable
Outstanding trend slightly up and slightly down, respectively, as Chipotle
matures as a company and is able to develop better relations with suppliers.
Projected Capital Expenditures and Acquisitions
$600.00

Capital Expenditures

$500.00

Capital expenditures typically relate to new restaurants and continued


reinvestments in existing restaurants. Recently, the majority of capital
expenditures have been related to new restaurant construction. Management has
stated that they expect between $150 million to $160 millio n in capital
expenditures in 2012. We project capital expenditures staying around 6% of
revenue, decreasing only slightly over time.

$400.00
$300.00
$200.00
$100.00
$0.00

Beta
Three different betas were calculated and weighted evenly for Chipotle Mexican
Grill: 5 year monthly, 3 year monthly, and a 1 year weekly. The discrepancy
between the 5 year monthly and 3 year monthly betas are due an extremely
volatile period between 2007 and 2009. While these swings were unusual, we
feel Chipotle is exposed to similar risk in its growth strategy.

Capital Expenditures

Intermediate Growth Rate


5 Year Monthly
3 Year Monthly
1 Year Weekly
Chipotle Mexican Grill, Inc. Beta

Beta
1.01
0.49
0.94
0.81

SD
0.27
0.34
0.15

Weighting
33.33%
33.33%
33.33%

Because of CMGs consistent growth and huge upside potential for international
expansion, we decided that a terminal growth rate of 3% immediately after 2021
into perpetuity was not appropriate. In order to account for Chipotles consistent
performance and large international growth opportunities, we used an
intermediate growth rate of 7% for the five years following 2021 until 2026. We
then introduced the terminal growth rate of 3% in 2027. This required us to
calculate a new terminal value and then discount it five additional years.

Recommendation
Although we believe CMGs strong brand image, focused business model, and
deliberate growth strategies will result in consistent growth for the company, we
feel that the market has already priced this in. This relatively fair valuation can
be seen in our DCF result of 6.54% overvalued. Additionally, the high
overvaluation that resulted from our relative analysis suggests that now may not
be the best time to invest in CMG. As a result, we are recommending a HOLD
for all portfolios.

Final Valuation
Discounted Cash Flow Analysis
Comparable Anaylsis
Price Target
Overvalued

Implied Price
Weighting
403.77
100.00%
279.29
0.00%
$403.77
(6.54%)

UOIG 12

University of Oregon Investment Group

Date of Presentation

Appendix 1 Comparables Analysis


Comparables Analysis
($ in millions)
Stock Characteristics
Current Price
50 Day Moving Average
200 Day Moving Average
Beta
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Interest Coverage Ratio
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Valuation
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/Net Income

Max
$432.03
403.85
345.25
1.19

Min
Weight Avg. Median
$22.74
$106.14
$84.07
23.48
109.17
83.77
21.73
96.02
72.21
0.73
1.01
0.92

CMG
PNRA
Chipotle Mexican
Grill, Inc.
Panera Bread Co.
40.00%
$432.03
$151.58
403.85
160.33
345.25
142.73
0.81
0.89

SBUX
Starbucks
Corporation
20.00%
$58.95
54.64
47.20
1.19

WFM
Whole Foods
Market, Inc.
25.00%
$84.42
83.77
74.61
1.10

BWLD
JACK
Buffalo Wild
Jack in the Box,
Wings Inc.
Inc.
15.00%
0.00%
$84.07
$22.74
87.79
23.48
72.21
21.73
0.92
0.73

44.25
549.50
1,569.50
2.50
0.00
776.60
45,344.18
44,326.68

0.00
0.00
13.64
0.00
0.00
18.51
1,004.49
1,484.69

6.72
114.65
538.53
0.50
0.00
217.53
15,049.71
14,633.04

0.34
19.00
222.64
0.00
0.00
48.91
4,615.75
4,393.11

0.00
0.00
370.19
0.00
0.00
31.35
13,535.86
13,165.67

0.00
0.00
222.64
0.00
0.00
30.48
4,615.75
4,393.11

0.00
549.50
1,569.50
2.50
0.00
776.60
45,344.18
44,326.68

0.34
19.00
529.99
0.00
0.00
188.95
15,607.00
15,096.34

44.25
0.00
20.53
0.00
0.00
18.51
1,552.13
1,575.85

21.04
472.81
13.64
0.00
0.00
48.91
1,004.49
1,484.69

49.44%
17.94%
21.13%
21.13%

11.79%
5.49%
8.82%
8.82%

21.71%
11.30%
15.60%
15.60%

27.01%
10.97%
17.02%
17.02%

26.49%
17.94%
21.13%
21.13%

23.04%
12.63%
17.02%
17.02%

27.48%
15.60%
19.95%
19.95%

11.79%
5.92%
8.82%
8.82%

27.01%
10.97%
17.34%
17.34%

49.44%
5.49%
9.89%
9.89%

$34.00
33.26%
228.88%
1723.90%

$0.00
0.00%
0.00%
37.60%

$8.10
.70%
9.92%
805.32%

$3.88
1.24%
22.60%
236.88%

$3.23
0.00%
0.00%
803.15%

$0.82
0.00%
0.00%
1723.90%

$34.00
1.24%
22.60%
53.62%

$3.88
.13%
2.09%
420.14%

$0.00
2.81%
32.53%
NA

$18.30
33.26%
228.88%
37.60%

$12,185.50
3,159.60
1,900.90
2,431.20
1,281.20

$784.48
211.88
86.10
136.01
50.43

$5,907.35
1,149.42
640.52
862.05
411.24

$2,181.30
1,139.29
230.12
310.02
135.95

$2,400.77
636.08
430.66
507.19
231.23

$1,822.03
419.83
230.12
310.02
135.95

$12,185.50
3,159.60
1,900.90
2,431.20
1,281.20

$10,495.07
1,271.15
621.52
925.59
372.21

$784.48
211.88
86.10
136.01
50.43

$2,181.30
1,139.29
119.67
215.77
60.15

5.48x
20.70x
30.57x
25.96x
56.94x

0.68x
1.30x
12.41x
6.88x
24.68x

2.35x
11.08x
21.12x
15.13x
34.67x

2.01x
10.46x
19.09x
14.17x
32.31x

5.48x
20.70x
30.57x
25.96x
56.94x

2.41x
10.46x
19.09x
14.17x
32.31x

3.64x
14.03x
23.32x
18.23x
34.60x

1.44x
11.88x
24.29x
16.31x
40.56x

2.01x
7.44x
18.30x
11.59x
31.25x

0.68x
1.30x
12.41x
6.88x
24.68x

Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/Net Income
Price Target
Current Price
Overvalued

Implied Price
Weight
192.02
0.00%
236.57
0.00%
301.95
50.00%
256.63
50.00%
267.58
0.00%
$279.29
432.03
(35.35%)

UOIG 13

University of Oregon Investment Group

Date of Presentation

Appendix 2 Discounted Cash Flows Analysis

Discounted Cash Flow Analysis


($ in millions)
Total Revenue
% YoY Growth
Cost of Goods Sold
% Revenue
Gross Profit
Gross Margin
General and Administrative Expense
% Revenue
Depreciation and Amortization
% Revenue
Pre-opening Costs
% Revenue
Loss on Disposal of Assets
% Revenue
Earnings Before Interest & Taxes
% Revenue
Interest Expense
% Revenue
Net Interest (Income)
% Revenue
Earnings Before Taxes
% Revenue
Less Taxes (Benefits)
Tax Rate
Net Income
Net Margin
Add Back: Depreciation and Amortization
Add Back: Interest Expense*(1-Tax Rate)
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
% Revenue
Change in Working Capital
Capital Expenditures
% Revenue
Unlevered Free Cash Flow
Discounted Free Cash Flow
EBITDA
EBITDA Margin

2008A
1332.00

2010A
1835.90
20.91%
1346.52
73.34%
$489.38
26.66%
118.59
6.46%
68.92
3.75%
7.77
0.34%
6.30
.34%
$287.81
15.68%
0.27
.01%
(1.50)
(.08%)
289.04
15.74%
110.08
38.09%
$178.96
9.75%
68.92
0.17
$248.04
13.51%
177.07
9.64%
123.05
6.70%
$54.01
2.94%
82.28
113.20
6.17%
$52.57

2011A
2269.50
23.62%
1680.32
74.04%
$589.18
25.96%
149.43
6.58%
74.94
3.30%
8.50
0.26%
5.81
.26%
$350.51
15.44%
2.95
.13%
(2.95)
(.13%)
350.51
15.44%
134.76
38.45%
$215.75
9.51%
74.94
1.81
$292.51
12.89%
93.71
4.13%
157.45
6.94%
($63.74)
(2.81%)
-117.75
151.10
6.66%
$259.16

Q1 2012A
640.60

Q2-4 2012E
2080.60

465.26
72.63%
$175.34
27.37%
49.33
7.70%
20.08
3.14%
2.45
0.38%
1.25
.20%
$102.22
15.96%
0.00%
(0.43)
(.07%)
102.66
16.03%
39.99
38.96%
$62.66
9.78%
20.08
0.00
$82.75
12.92%
174.63
27.26%
124.55
19.44%
$50.09

1556.59
74.81%
$524.01
25.19%
131.63
6.33%
100.06
4.81%
5.72
0.27%
0.00%
$286.61
13.78%
2.72
.13%
(2.29)
(.11%)
286.17
13.75%
112.82
39.42%
$173.36

152.10
11.42%
($20.91)

2009A
1518.36
13.99%
1139.90
75.07%
$378.46
24.93%
99.15
6.53%
61.31
4.04%
8.40
0.39%
5.96
.39%
$203.65
13.41%
0.41
.03%
(0.93)
(.06%)
204.17
13.45%
77.38
37.90%
$126.79
8.35%
61.31
0.25
$188.35
12.40%
74.75
4.92%
103.02
6.78%
($28.26)
(1.86%)
-71.21
117.20
7.72%
$142.36

113.83
41.86
6.54%
($72.95)

176.8
13.28%

265.0
17.45%

356.7
19.43%

425.5
18.75%

122.3
19.09%

1045.04
78.46%
$286.96
21.54%
89.16
6.69%
52.77
3.96%
11.62
0.87%
9.34
.70%
$124.07
9.31%
0.30
.02%
(3.47)
(.26%)
127.24
9.55%
49.00
38.51%
$78.24
5.87%
52.77
0.19
$131.19
9.85%
120.47
9.04%
77.53
5.82%
$42.95
3.22%

-46.34
125.49
6.03%
$195.91
185.33

2012 A+E
2721.20
19.90%
2021.85
74.30%
$699.35
25.70%
180.96
6.65%
120.15
4.42%
8.16
0.30%
1.25
0.00%
$388.83
14.29%
2.72
.10%
(2.72)
(.10%)
388.83
14.29%
152.81
39.30%
$236.02
8.67%
120.15
1.65
$357.82
13.15%
183.78
6.75%
180.03
6.62%
$3.75
.14%
67.49
167.35
6.15%
$122.97
108.03

2013E
3225.08
18.52%
2386.56
74.00%
$838.52
26.00%
209.63
6.50%
144.74
4.49%
11.29
0.35%
0.00%
$472.87
14.66%
2.90
.09%
(2.58)
(.08%)
472.54
14.65%
185.71
39.30%
$286.83
8.89%
144.74
1.76
$433.33
13.44%
218.61
6.78%
212.50
6.59%
$6.10
.19%
2.36
196.73
6.10%
$234.25
191.10

2014E
3786.21
17.40%
2782.87
73.50%
$1,003.35
26.50%
242.32
6.40%
173.61
4.59%
15.14
0.40%
0.00%
$572.28
15.11%
3.03
.08%
(2.27)
(.06%)
571.52
15.09%
224.61
39.30%
$346.91
9.16%
173.61
1.84
$522.36
13.80%
257.33
6.80%
247.79
6.54%
$9.54
.25%
3.43
230.96
6.10%
$287.97
218.17

2015E
4396.10
16.11%
3217.95
73.20%
$1,178.16
26.80%
276.95
6.30%
206.85
4.71%
17.58
0.40%
0.00%
$676.76
15.39%
0.00%
0.00%
676.76
15.39%
265.97
39.30%
$410.80
9.34%
206.85
0.00
$617.65
14.05%
300.17
6.83%
285.75
6.50%
$14.43
.33%
4.89
265.96
6.05%
$346.80
243.99

2016E
5046.90
14.80%
3674.14
72.80%
$1,372.76
27.20%
312.91
6.20%
245.02
4.85%
17.66
0.35%
0.00%
$797.16
15.80%
0.00%
0.00%
797.16
15.80%
313.29
39.30%
$483.88
9.59%
245.02
0.00
$728.90
14.44%
344.42
6.82%
327.15
6.48%
$17.27
.34%
2.85
305.34
6.05%
$420.71
274.88

2017E
5729.74
13.53%
4162.65
72.65%
$1,567.08
27.35%
349.51
6.10%
288.35
5.03%
17.19
0.30%
0.00%
$912.03
15.92%
0.00%
0.00%
912.03
15.92%
358.43
39.30%
$553.60
9.66%
288.35
0.00
$841.95
14.69%
390.86
6.82%
370.65
6.47%
$20.22
.35%
2.94
346.65
6.05%
$492.36
298.74

2018E
6441.36
12.42%
4663.55
72.40%
$1,777.82
27.60%
386.48
6.00%
242.67
3.77%
16.10
0.25%
0.00%
$1,132.56
17.58%
0.00%
0.00%
1,132.56
17.58%
445.10
39.30%
$687.47
10.67%
242.67
0.00
$930.13
14.44%
439.11
6.82%
415.25
6.45%
$23.86
.37%
3.65
386.48
6.00%
$540.00
304.27

2019E
7178.39
11.44%
5193.56
72.35%
$1,984.82
27.65%
423.52
5.90%
291.27
4.06%
14.36
0.20%
0.00%
$1,255.67
17.49%
0.00%
0.00%
1,255.67
17.49%
493.48
39.30%
$762.19
10.62%
291.27
0.00
$1,053.46
14.68%
489.03
6.81%
461.18
6.42%
$27.85
.39%
3.98
430.70
6.00%
$618.78
323.78

2020E
7936.96
10.57%
5718.58
72.05%
$2,218.38
27.95%
460.34
5.80%
329.88
4.16%
15.87
0.20%
0.00%
$1,412.28
17.79%
0.00%
0.00%
1,412.28
17.79%
555.03
39.30%
$857.26
10.80%
329.88
0.00
$1,187.14
14.96%
540.55
6.81%
509.19
6.42%
$31.36
.40%
3.52
476.22
6.00%
$707.40
343.74

2021E
8712.78
9.77%
6264.49
71.90%
$2,448.29
28.10%
496.63
5.70%
370.63
4.25%
17.43
0.20%
0.00%
$1,563.60
17.95%
0.00%
0.00%
1,563.60
17.95%
614.50
39.30%
$949.11
10.89%
370.63
0.00
$1,319.74
15.15%
593.15
6.81%
557.80
6.40%
$35.35
.41%
3.99
522.77
6.00%
$792.99
357.83

386.7
18.58%

509.0
18.70%

617.6
19.15%

745.9
19.70%

883.6
20.10%

1042.2
20.65%

1200.4
20.95%

1375.2
21.35%

1546.9
21.55%

1742.2
21.95%

1934.2
22.20%

100.06
1.65
$275.07
13.22%
183.78
8.83%
180.03
8.65%
$3.75

UOIG 14

University of Oregon Investment Group

Date of Presentation

Appendix 3 Revenue Model

Revenue Model
($ in millions)

2008A

2009A

2010A

2011A

Comparable Restaurants

$1,149.70

$1,356.66

$1,657.20

$2,031.60

18.00%

22.15%

22.59%

$182.30

$161.70

$178.70

$237.90

% Growth
New Restaurants
% Growth
Total Revenue

9.03%

(11.30%)

10.52%

33.13%

$1,332.00

$1,518.36

$1,835.90

$2,269.50

13.99%

20.91%

23.62%

% Growth

Comparable Restaurants
Average Revenue
% Growth
New Restaurants
Average Revenue
% Growth
Total Restaurants

704
$1.633

839
$1.617
-0.99%
133
119
$1.371 $1.359
-0.87%
837
958

956
1084
$1.733 $1.874
7.20% 8.12%
128
146
$1.396 $1.629
2.75% 16.71%
1084
1230

Q1 2012A Q2-4 2012E 2012A+E

2013E

$6,808.11

2020E
$7,563.81

2021E

20.28%

19.56%

18.30%

17.14%

15.90%

14.41%

13.16%

12.06%

11.10%

10.24%

$303.52

$329.91

$347.23

$354.38

$360.82

$366.15

$370.28

$373.15

$374.70

16.71%

9.31%

8.70%

5.25%

2.06%

1.82%

1.48%

1.13%

.77%

.41%

$640.60

$2,080.60

$2,721.20

$3,225.08

$3,786.21

$4,396.10

$5,046.90

$5,729.74

$6,441.36

$7,178.39

$7,936.96

$8,712.78

19.90%

18.52%

17.40%

16.11%

14.80%

13.53%

12.42%

11.44%

10.57%

9.77%

1230
$1.987
6.00%
160
$1.735
6.50%
1390

1390
$2.102
5.80%
165
$1.839
6.00%
1555

1555
$2.223
5.75%
170
$1.941
5.50%
1725

1725
$2.347
5.60%
170
$2.043
5.25%
1895

1895
$2.476
5.50%
165
$2.148
5.15%
2060

2060
$2.606
5.25%
160
$2.255
5.00%
2220

2220
$2.737
5.00%
155
$2.362
4.75%
2375

2375
$2.867
4.75%
150
$2.469
4.50%
2525

2525
$2.996
4.50%
145
$2.573
4.25%
2670

2670
$3.123
4.25%
140
$2.676
4.00%
2810

1390

$6,075.21

2019E

$277.66

1262

$5,368.92

2018E

$208.24

160
$1.302

$4,692.52

2017E

$13.88

32
$0.43

$4,048.87

2016E

$2,443.54

1230
$1.522

$3,456.30

2015E

$1,872.35

1230
$0.510

$2,921.56

2014E

$626.72

$8,338.09

Appendix 4 Cost of Goods Sold Model

COGS Model
($ in millions)

2008A

Food, Beverage, & Packaging $431.95

2009A
$466.03

2010A
$561.11

2011A
$738.72

Q1 2012A
$206.59

Q2-4 2012E 2012A+E


$696.85

$903.44

2013E
$1,073.95

2014E
$1,257.02

2015E
$1,459.51

2016E
$1,670.52

2017E
$1,896.54

2018E
$2,125.65

2019E
$2,368.87

2020E
$2,607.29

2021E
$2,862.15

% Revenue

32.43%

30.69%

30.56%

32.55%

32.25%

33.49%

33.20%

33.30%

33.20%

33.20%

33.10%

33.10%

33.00%

33.00%

32.85%

32.85%

Labor

$351.01

$385.07

$453.57

$543.12

$151.99

$495.66

$647.65

$762.73

$889.76

$1,026.49

$1,170.88

$1,320.70

$1,475.07

$1,640.26

$1,801.69

$1,964.73

% Revenue

26.35%

25.36%

24.71%

23.93%

23.73%

23.82%

23.80%

23.65%

23.50%

23.35%

23.20%

23.05%

22.90%

22.85%

22.70%

22.55%

$98.07

$114.22

$128.93

$147.27

$40.51

$129.57

$170.08

$193.50

$217.71

$252.78

$290.20

$329.46

$370.38

$412.76

$456.38

$500.98

Occupancy Costs
% Revenue
Other Operating Costs

7.36%

7.52%

7.02%

6.49%

6.32%

6.23%

6.25%

6.00%

5.75%

5.75%

5.75%

5.75%

5.75%

5.75%

5.75%

5.75%

$164.02

$174.58

$202.90

$251.21

$66.18

$234.51

$300.69

$356.37

$418.38

$479.18

$542.54

$615.95

$692.45

$771.68

$853.22

$936.62

% Revenue

12.31%

11.50%

11.05%

11.07%

10.33%

11.27%

11.05%

11.05%

11.05%

10.90%

10.75%

10.75%

10.75%

10.75%

10.75%

10.75%

Total COGS

$1,045.04

$1,139.90

$1,346.52

$1,680.32

$465.26

$1,556.59

$2,021.85

$2,386.56

$2,782.87

$3,217.95

$3,674.14

$4,162.65

$4,663.55

$5,193.56

$5,718.58

$6,264.49

% Revenue

78.46%

75.07%

73.34%

74.04%

72.63%

74.81%

74.30%

74.00%

73.50%

73.20%

72.80%

72.65%

72.40%

72.35%

72.05%

71.90%

UOIG 15

University of Oregon Investment Group

Date of Presentation

Appendix 5 Working Capital Model


Working Capital Model
($ in millions)
Total Revenue
Current Assets
Accounts Receivable
Days Sales Outstanding A/R
% of Revenue
Inventory
Days Inventory Outstanding
% of Revenue
Prepaid Expenses
Days Prepaid Expense Outstanding
% of Revenue
Income Tax Receivable
% of Revenue
Investments
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Capital Expenditures
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding
% of Revenue
Accrued Charges
Days Charges Outstanding
% of Revenue
Total Current Liabilities
% of Revenue

2008A
$1,332.00

2009A
$1,518.36

2010A
$1,835.90

2011A
$2,269.50

Q1 2012A
$640.60

2012 A+E
$2,721.20

2013E
$3,225.08

2014E
$3,786.21

2015E
$4,396.10

2016E
$5,046.90

2017E
$5,729.74

2018E
$6,441.36

2019E
$7,178.39

2020E
$7,936.96

2021E
$8,712.78

3.64
1.00
0.27%
4.79
1.68
0.36%
11.76
4.12
0.88%
0.29
0.02%
99.99
7.51%
120.47
9.04%

4.76
1.14
0.31%
5.61
1.80
0.37%
14.38
4.60
0.95%
0.00
0.00%
50.00
3.29%
74.75
4.92%

5.66
1.12
0.31%
7.10
1.92
0.39%
16.02
4.34
0.87%
23.53
1.28%
124.77
6.80%
177.07
9.64%

8.39
1.35
0.37%
8.91
1.94
0.39%
21.40
4.65
0.94%
0.00
0.00%
55.01
2.42%
93.71
4.13%

9.09
1.31
1.42%
10.02
NA
1.56%
26.16
NA
4.08%
34.89
5.45%
94.48
14.75%
174.63
27.26%

10.44
1.4
0.38%
10.97
1.98
0.40%
26.31
4.75
0.97%
$0.00
0.00%
$136.06
5.00%
183.78
6.75%

13.22
1.5
0.41%
13.08
2.00
0.41%
31.06
4.75
0.96%
$0.00
0.00%
$161.25
5.00%
218.61
6.78%

16.55
1.6
0.44%
15.25
2.00
0.40%
36.22
4.75
0.96%
$0.00
0.00%
$189.31
5.00%
257.33
6.80%

21.02
1.75
0.48%
17.58
2.00
0.40%
41.76
4.75
0.95%
$0.00
0.00%
$219.81
5.00%
300.17
6.83%

24.13
1.75
0.48%
20.13
2.00
0.40%
47.81
4.75
0.95%
$0.00
0.00%
$252.35
5.00%
344.42
6.82%

27.40
1.75
0.48%
22.81
2.00
0.40%
54.17
4.75
0.95%
$0.00
0.00%
$286.49
5.00%
390.86
6.82%

30.80
1.75
0.48%
25.55
2.00
0.40%
60.69
4.75
0.94%
$0.00
0.00%
$322.07
5.00%
439.11
6.82%

34.32
1.75
0.48%
28.38
2.00
0.40%
67.40
4.75
0.94%
$0.00
0.00%
$358.92
5.00%
489.03
6.81%

37.95
1.75
0.48%
31.33
2.00
0.39%
74.42
4.75
0.94%
$0.00
0.00%
$396.85
5.00%
540.55
6.81%

41.66
1.75
0.48%
34.33
2.00
0.39%
81.52
4.75
0.94%
$0.00
0.00%
$435.64
5.00%
593.15
6.81%

152.1
-52.77
585.90
706.37
53.03%

585.9
117.2
-61.31
636.41
711.17
46.84%

636.4
113.2
-68.92
676.88
853.95
46.51%

676.9
151.1
-74.94
751.95
845.66
37.26%

751.95
41.86
-20.08
773.12
947.75
147.95%

752.0
167.35
-120.15
799.16
982.94
36.12%

799.2
196.73
-144.74
851.15
1069.76
33.17%

851.2
230.96
-173.61
908.50
1165.83
30.79%

908.5
265.96
-206.85
967.61
1267.79
28.84%

967.6
305.34
-245.02
1027.93
1372.35
27.19%

1027.9
346.65
-288.35
1086.23
1477.09
25.78%

1086.2
386.48
-242.67
1230.04
1669.15
25.91%

1230.0
430.70
-291.27
1369.48
1858.50
25.89%

1369.5
476.22
-329.88
1515.81
2056.36
25.91%

1515.8
522.77
-370.63
1667.94
2261.09
25.95%

23.89
8.37
1.79%
52.82
18.50
3.97%
77.53
5.82%

25.23
8.08
1.66%
72.62
23.25
4.78%
103.02
6.78%

33.71
9.14
1.84%
89.23
24.19
4.86%
123.05
6.70%

46.38
10.08
2.04%
106.70
23.18
4.70%
157.45
6.94%

49.15
9.72
7.67%
75.26
14.88
11.75%
124.55
19.44%

52.62
9.5
1.93%
127.40
23
4.68%
180.03
6.62%

62.12
9.5
1.93%
150.39
23
4.66%
212.50
6.59%

72.43
9.5
1.91%
175.36
23
4.63%
247.79
6.54%

83.53
9.5
1.90%
202.22
23
4.60%
285.75
6.50%

95.63
9.5
1.89%
231.52
23
4.59%
327.15
6.48%

108.34
9.5
1.89%
262.30
23
4.58%
370.65
6.47%

121.38
9.5
1.88%
293.87
23
4.56%
415.25
6.45%

134.81
9.5
1.88%
326.37
23
4.55%
461.18
6.42%

148.84
9.5
1.88%
360.35
23
4.54%
509.19
6.42%

163.05
9.5
1.87%
394.75
23
4.53%
557.80
6.40%

Appendix 6 Discounted Cash Flow Assumptions & Considerations

Tax Rate
Risk Free Rate
Beta
Market Risk Premium
% Equity
% Debt
Cost of Debt
CAPM
WACC

Discounted Free Cash Flow Assumptions


39.30% Terminal Growth Rate
2.00% Terminal Value
0.81 PV of Terminal Value
7.00% Sum of PV Free Cash Flows
100.00% Firm Value
0.00% Total Debt
0.00% Cash & Cash Equivalents
7.68% Market Capitalization
7.68% Fully Diluted Shares
Implied Price
Current Price
Overvalued

Considerations
Considerations

3.00%
24,462
8,059
4,597
12,656
0
370
12,656
31.35
403.77
432.03
(6.54%)

Avg. Industry Debt / Equity


Avg. Industry Tax Rate
Current Reinvestment Rate
Reinvestment Rate in Perpetuity
Implied Return on Capital in Perpetuity
Terminal Value as a % of Total
Implied 2013E EBITDA Multiple
Implied Terminal Year Multiple
Terminal Free Cash Flow Growth Rate
5 Year Intermediate Growth Rate

10.67%
NA
47.90%
16.45%
18.24%
63.7%
20.5x
4.2x
12%
7%

UOIG 16

University of Oregon Investment Group

Date of Presentation

Intermediate
Growth Rate

Adjusted Beta

Appendix 7 Sensitivity Analyses

404
0.61
0.71
0.81
0.91
1.01

404
5%
6%
7%
8%
9%

Implied Enterprise Value


Terminal Growth Rate
2.0%
2.5%
3.0%
507.13
554.30
615.93
421.59
452.76
491.80
356.47
377.84
403.77
308.73
324.16
342.47
269.81
281.15
294.38

Implied Enterprise Value


Terminal Growth Rate
2.3%
2.5%
3.0%
343.64
353.81
377.40
354.94
365.61
390.35
366.67
377.84
403.77
378.81
390.52
417.69
391.40
403.66
432.10

Und
3.5%
699.84
542.09
435.90
364.54
309.97

4.0%
820.78
609.35
476.75
391.66
328.65

Under
3.5%
406.64
421.00
435.90
451.34
467.35

4.0%
443.81
459.98
476.75
494.14
512.16

Appendix 8 Sources

SEC Filings (www.sec.gov)


Factset
IBISWorld
Yahoo! Finance
CMG Investor Relations
Reuters
Forbes
Seeking Alpha (Conference Call Transcripts)
Google News

UOIG 17