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 equity company chipotle

Module 9: Valuation of equityCompany: chipotle

Matt Ramirez


Chipotle background

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

Value of equity (own estimate)


Estimate of market value of debt

Estimate of market value of debt


Estimate of enterprise value

Estimate of enterprise value


Estimate of equity value

Estimate of equity value


Discussion

discussion

  • 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 matrix


Sensitivity to long term growth rate wacc

Sensitivity to long-term growth rate & wacc


Discussion1

discussion

  • 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

Value of equity (using analyst estimates)


Valueline forecasts of eps dps

Valueline forecasts of eps/dps


Implied valueline forecasts through 2019

Implied valueline forecasts through 2019

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


Estimate of equity value residual earnings model

Estimate of equity value (residual earnings model)


Long term growth rate derived from rei equation

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


Discussion2

discussion

  • 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


Conclusion

conclusion


Estimate price comparisons

Estimate price comparisons


Final comments

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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