The Financial Analysis Of Chipotle Mexican Grill Inc.
The objective of this thesis is to value Chipotle Mexican Grill, Inc., a U.S. based fast-casual restaurant chain that had recently gone through a foodborne illness outbreak, as December of 2016. In order to value Chipotle, the author has analyzed the strategic outlook and the financial performance of the company, as well as conducted both the discounted cash flow analysis and the comparable company analysis. In respect with the overall fast-casual industry in which Chipotle competes, although the market competition is intensifying, it is expected that this industry will continue to grow in the U.S, thanks to the high consumer confidence and the increasing health awareness (Euromonitor International, 2017a, 2017b). As 2016, the U.S. was the
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Using a WACC of 6.65% and a perpetuity growth rate of 2.84%, the DCF analysis yields an enterprise value $12,797 million for Chipotle, with present value of the terminal value accounting for 88.8% of the enterprise value. In a per share basis, the DCF analysis values Chipotle at $443.90 per share as December 2016. Furthermore, it is important to consider that the price share obtained through the DCF analysis is quite sensitive to the changes in WACC and perpetuity growth rate that are key inputs of the model, as shown in the Table 13 of the sensitivity …show more content…
It is suggested that while the valuation multiple approach might be an easy and efficient valuation method to value mature and well-established firms, it might not be an appropriate valuation method to value the companies in extraordinary circumstances, since it does not seem feasible to find highly comparable companies for the latter. Thus, considering that Chipotle had just gone through the foodborne illness outbreak and so found itself in a crisis situation as 2016, the valuation multiple approach does not seem to be the most suitable valuation method to value Chipotle. However, the EV/Sales multiple values Chipotle at $481.70 per share, which is closest to the share price of $443.90 given by the DCF
Using a WACC of 6.65% and a perpetuity growth rate of 2.84%, the DCF analysis yields an enterprise value $12,797 million for Chipotle, with present value of the terminal value accounting for 88.8% of the enterprise value. In a per share basis, the DCF analysis values Chipotle at $443.90 per share as December 2016. Furthermore, it is important to consider that the price share obtained through the DCF analysis is quite sensitive to the changes in WACC and perpetuity growth rate that are key inputs of the model, as shown in the Table 13 of the sensitivity …show more content…
It is suggested that while the valuation multiple approach might be an easy and efficient valuation method to value mature and well-established firms, it might not be an appropriate valuation method to value the companies in extraordinary circumstances, since it does not seem feasible to find highly comparable companies for the latter. Thus, considering that Chipotle had just gone through the foodborne illness outbreak and so found itself in a crisis situation as 2016, the valuation multiple approach does not seem to be the most suitable valuation method to value Chipotle. However, the EV/Sales multiple values Chipotle at $481.70 per share, which is closest to the share price of $443.90 given by the DCF