Module 9 valuation of equity company chipotle
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Module 9: Valuation of equity Company: chipotle. Matt Ramirez. Chipotle background. Mexican grill that focuses on serving quality food while maintaining speed and efficiency Found in 1993 by Steve Ells in Denver, Colorado

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Module 9: Valuation of equity Company: chipotle

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Module 9: Valuation of equityCompany: chipotle

Matt Ramirez

Chipotle background

  • Mexican grill that focuses on serving quality food while maintaining speed and efficiency

  • Found in 1993 by Steve Ells in Denver, Colorado

  • Considered a “fast-casual” restaurant: food that is served fast without the “fast food” methods or ambiance, allows customers to eat “on the go” or in a nicer restaurant environment

  • Not franchised, centrally-owned

Value of equity (own estimate)

Estimate of market value of debt

Estimate of enterprise value

Estimate of equity value


  • Confident that my Net Financial Assets reflects accurate market value: no footnotes indicating difference or adjustments for 2013

  • Net Financial Assetsadded to calculated enterprise value to find equity value (no liabilities/no debt)

  • Possible adjustments to NFA later on as footnotes are analyzed further

  • Difficult to predict cost of equity: not constant due to its dependence on leverage (also not constant): better to focus on enterprise valuation (less expectation to change)

Sensitivity matrix

Sensitivity to long-term growth rate & wacc


  • The sensitivity matrix shows possible differences to the market: does the market place a higher long-term growth rate on Chipotle? Are they using a slightly lower WACC? Combination of both?

  • Is the market overly-optimistic or am I too conservative?

  • Interesting to see how quickly value grows as growth rate increases by .5-1% and WACC even slightly decreases: possible adjustments needed

Value of equity (using analyst estimates)

Valueline forecasts of eps/dps

Implied valueline forecasts through 2019

*Implied rate: fourth root of difference from 2014-2018

Estimate of equity value (residual earnings model)

Long-term growth rate derived from rei equation

*Calculated by substituting current market price into REI equation and solving for growth

*(CIt+1 – rEq x CSEt/CIt – rEq x CSEt-1)=1+g


  • Valueline chosen: trusted site and one of few that extended expected EPS through 5 years

  • No dividends: dividend discount model not used

  • Residual earnings model seems to be growing year-after-year: when will steady state be achieved?

  • >10% long term growth rate: does not seem realistic or acceptable to use


Estimate price comparisons

Final comments

  • Market places much higher value than my own/analyst current estimates: where is this extra value?

  • Leverage is almost impossible to predict, making estimates/assumptions for equity is extremely difficult: should therefore make valuations based on the enterprise

  • Most likely need to refine my models: possible long-term growth rate increase 4.5% to better reflect the market

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