Chipotle Intrinsic Value Analysis: Mexican Food Restaurant and Catering

Hi! In this video I analyzed Chipotle, which is one of the most well known fast food businesses in the world. Chipotle is a restaurant chain that specializes in sourcing, preparing, and delivering Mexican food. Chipotle's stock has fallen over the last three months by 20%. Some investors on Wall Street think that at the current prices, Chipotle could present a buying opportunity. I did a discounted cash flow analysis on Microsoft Excel to figure out what the intrinsic value would be based on the projected free cash flow for the business. I analyzed Chipotle's income statement, Chipotle's balance sheet, and Chipotle's cash flow statement to get a sense of how much debt they currently have as well as if they'll grow their profits in the future. Successful value investors like Warren Buffet, Charlie Munger, Peter Lynch, Monish Pabrai and Guy Spier use these research strategies all the time to figure out if a business presents a good investment opportunity, and in this video, I provide a beginner level demonstration of what that process looks like.

Chipotle

Business overview

Chipotle Mexican grill owns and operates their own restaurants, which hold a menu of burritos, burrito bowls, tacos and salads. The first chipotle was opened as a single restaurant in Denver, Colorado in 1993. As of December 31, 2020 Chipotle owned and operated 2,724 U.S restaurants and 40 international restaurants. Chipotle employs about 88,000 people worldwide.

Risks

In 2020, 46.2% of Chipotle’s revenues came from digital orders, which include delivery and in store pickup compared to just 18% of revenues in 2019. In some cases the delivery fee that Chipotle collected from their customers was less than the cost of delivery, which made some of their deliveries unprofitable. The continuation of the pandemic as well as an increase in unprofitable deliveries could negatively impact their profits.

Labor shortages in their supply chain could lead to cost-push inflation. Due to the fact that there could be less ingredients like beef, avocados and chicken being produced as a result of a decline in workers during the pandemic, the cost of these limited resources might rise, which could negatively impact their profits.

2020 Financial Highlights (Income Statement)

Total revenue increased by 7.1% to $6 billion in 2020 from $5.6 billion in 2019.
During 2020, operating costs (mainly packaging, labor, delivery expenses) were 82.6% of total revenues, which was an increase from 79.5% of total revenues in 2019. The increase came as a result of higher delivery costs due to the pandemic, increase in beef prices and less beverage sales.
They opened 161 new restaurants in 2020. They expected to open approximately 200 new restaurants in 2021.

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Chipotle Annual Report:
https://app.quotemedia.com/data/downl...

Chipotle Official Website:
https://www.chipotle.com/

Article used in the video:

The bear-market selloff in Chipotle’s stock has created an ‘attractive’ buying opportunity, analyst says:
https://www.marketwatch.com/story/the...

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0:00 Intro
0:50 Business Overview
1:25 Risk Factors
1:40 Unprofitable Digital Orders
2:22 Cost-Push Inflation
2:50 Balance Sheet
3:49 Income Statement
4:52 Shareholders Equity Statement
5:18 Cash Flow Statement
6:23 Discounted Cash Flow Analysis
10:00 Closing