CMG Chipotle Mexican Grill
Store growth is real, but falling traffic and margins mean $31 still prices in a recovery that hasn't come.
The story
Chipotle is still a premium fast-casual franchise with a strong brand, company-owned unit economics and a long runway of roughly 8% annual unit growth. It is slowing into maturity: same-store traffic is negative, TTM revenue growth has fallen to about 4%, and operating margin has dropped from 17.5% to 15.4% as food and labor inflation meet consumers who push back on price increases. The thesis from the last review is holding up: new stores add growth, but the older base is losing pricing power.
I kept the previous drivers because the latest facts confirm that story rather than change it. I trimmed year-1 growth from 6.5% to 6% (a minor move) because TTM growth is about 4% while new stores still add roughly 7-8% to the base. TTM margin has already fallen to 15.4%, so the 14% target margin, set below the recent peak, looks even more sensible; sales-to-capital stays at 3.5 even though it is currently 4.39, because new stores are being built at a time of rising costs.
Value drivers
| Revenue growth (Y1) | 6.0% |
| Terminal growth | 3.5% |
| Forecast horizon | 7y |
| Target operating margin | 14.0% |
| Years to target margin | 5 |
| Sales-to-capital | 3.50 |
| Beta | 1.05 |
| Failure probability | 2.0% |
| Cost of capital (WACC) | 10.0% |
| Terminal WACC | 9.8% |
Valuation bridge
| PV of explicit FCFF | 7.10B |
| PV of terminal value | 12.02B |
| Equity value | 19.08B |
| ÷ shares → per share | $15.08 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 13.17B | 6.0% | 15.2% | 1.53B | 212.98M | 1.31B | 1.19B |
| 2 | 13.90B | 5.6% | 14.9% | 1.58B | 210.08M | 1.37B | 1.13B |
| 3 | 14.62B | 5.2% | 14.6% | 1.63B | 205.26M | 1.42B | 1.07B |
| 4 | 15.32B | 4.8% | 14.3% | 1.67B | 198.45M | 1.47B | 1.01B |
| 5 | 15.98B | 4.3% | 14.0% | 1.71B | 189.64M | 1.52B | 942.41M |
| 6 | 16.61B | 3.9% | 14.0% | 1.78B | 178.84M | 1.60B | 900.28M |
| 7 | 17.19B | 3.5% | 14.0% | 1.84B | 166.07M | 1.67B | 856.54M |
Key risks
- Same-store traffic declines persist and force discounting or reverse price increases
- Beef, avocado and wage inflation compress restaurant-level margins below 24%
- New-unit cannibalization and weaker new-store productivity dilute returns on capital
Catalysts
- A traffic turnaround from menu innovation, throughput gains or marketing that brings comps back to mid-single digits
- Margin recovery as commodity costs ease, plus buybacks at lower prices