Wednesday, January 10, 2007

Calls of Note Part 3

- Merrill Lynch is cutting their 2007 and 2008 EPS ests for Chipotle Mexican Grill (NYSE:CMG). Estimates go down by $0.10 (5.9%) and $0.14 (6.6%) to $1.59 and $1.95 respectively. Firm's revision reflects a lower outlook for margin expansion, given CMG's regional exposure to state minimum wage increases, and a 1% point downward revision of SSS growth forecast.

Given 99% company ownership and 54% of the units located in states with double digit minimum wage increases, they expect the margins to be vulnerable to labor cost pressures. Firm estimates EPS impact for labor inflation to be $0.06 - $0.08 (3-5%).

CMG is up against tough compares of 19.7% and 14.5% SSS growth in 1Q06 and 2Q06. ML expects SSS growth to decelerate from 15% YTD 2006 SSS growth to mid-single digits for 2007.
Sees limited upside to CMG's current multiple of 14.3x 2007E EBITDA given decelerating SSS growth and forecast for reduced margin expansion. Maintains Neutral.

Notablecalls: Not actionable but good to know category.

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