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TeenStockPicker (84.20)

My Case for Chipotle



December 20, 2012 – Comments (6) | RELATED TICKERS: CMG , JACK , YUM

Chipotle has taken a beating in 2012, smashed down by lower than expected earnings, future earnings estimates, and the talk of competition with Taco Bell and raising their prices.

  First off my views on the earnings reports of 2012.  Chipotle met the consensus of the 26 analysts following the comapny in both the 1st and 3rd quarter reports and exceeded them for the 2nd quarter!  Why would they go down one might ask?  Because they lowered there growth estimates for the upcoming year. The point I think many are missing right now is that even though the growth estimates have been lowered they still are great, next year there is an expected growth rate of 16% or 12.72.  Another thing to look at is since 2009 Chipotle has either met or exceeded there earings reports, so I believe these lowerings of future estimates are simply becuase Chipotle does not want to disapoint. 

 I believe the business believed to be taken away by Taco Bell either in the recent earning or future reports is absurd.  Taco Bell is like the McDonalds of Coffee in comparison to Starbucks, yes some people do get there coffe from McDonalds but the ones who like Starbucks stick with Starbuks and that amount continues to grow.  In this industry Chipotle's only real compition is Qdoba (owned by Jack in the Box) which is much smaller and I feel they really blow them away.  At Taco Bell although there recent Cantina Bell menu has focues on "all natural ingredients" if someone really wants to be healthy they are not going to go to Taco Bell; it just doesnt make sense.  Taco Bell is still fast food, they make it in the back off of a company recipe and give it to you pretty much right away. Chipotle is casual dining where you can get it to go but you personalize your meal to what you want, basically Subway but in the mexican food industry.


Overall I believe Chipotle is poised for a comback in 2013 and am seriously considering purchasing some shares.  What do you think? 

 Fool On!


6 Comments – Post Your Own

#1) On December 21, 2012 at 12:24 AM, awallejr (38.34) wrote:

I have to be honest, I really don't like their model.  I find them too expensive and boring.  But that is just me.

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#2) On December 21, 2012 at 12:29 AM, awallejr (38.34) wrote:

As a followup.  I can get 2 chicken sandwiches, a baked potato and a drink for half the price at Wendys.  I say buy Wendys stock, you get a good meal and a decent dividend.

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#3) On December 21, 2012 at 12:47 AM, SuntanSuperman (99.83) wrote:

There are many competators in this space. Just not many national ones (except for of course Taco Bell). I love the privately-heald Rubio's Fresh Mexican Grill. Still a regional-chain (mostly located in California), but they are growing. When I lived in Vegas, I'd take home some Rubio's at least once a week. Love their food. I like Chipotle's food also, but Rubio's was my personal favoriate.

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#4) On December 21, 2012 at 3:46 AM, ikkyu2 (97.93) wrote:

Well stated - like a boss.  Thanks for your write-up.

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#5) On December 21, 2012 at 11:05 AM, elcid24 (58.85) wrote:

#2) Chipotle's operating margin is about 16% and growing.  Wendy's is about 5% and shrinking.  I recently spoke with a guy who has spent his entire career in the restaurant industry who said that "scoop and serve" was arguably the best business model for a fast food restaurant.

I wouldn't recommend investing based on chicken sandwiches and baked potatoes.  Wendy's hasn't generated any cash flow from net income in about 5 years... 

Long CMG.

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#6) On December 21, 2012 at 12:51 PM, TeenStockPicker (84.20) wrote:

well said elcid24, the margins are very delicious and there is a growing trend of people who are willing to pay for good quality food instead of that cheap mashed together chicken sandwich.  I know there will always be a market for the dollar menus but what makes Chipotle so attractive to me is that there customer base is growing, and so is their store count.  Still a solid growth option in my eyes.  

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