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Author: BaltoBruiser Big red star, 1000 posts Old School Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 434  
Subject: CMG analysis post Q2 results Date: 7/25/2012 12:43 PM
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So it has taken me a couple of days to digest and analyze the CMG 
report from last Thursday.  I am not going to rehash the quarterly
results but I will say that despite the market and analyst reaction
I still believe that the maangement team is demonstrating operational
excellence.  

What I have done is gone back to my financial statement model and
updated the quarterly numbers and made some adjustments to the 
future years based on the information provided on the call and in
the report.  I then ran the numbers using some high expectations (H)
normal expectations (E), and low expectations (L).  In addition
I used some expected valuations that the market might provide CMG.
My CAGR was based on the July 24th closing price of $294.31/share
and was for a 54 month period since YE 2016 results will probably
be available at that time.  

	               2016
	       H         E            L			
REVENUE	    6,598,000  6,141,000   4,902,000
NET INCOME    663,120    584,660     441,150	
EPS	        20.33      17.94       13.51      
VALUATION          35         25          15          		
SHARE PRICE    711.52     448.44      202.71      		
SP CAGR	        21.7%       9.8%       -8.0%       

OK I can do basic tables after 1,000 posts (Yipee!)!

So you can see that it appears that at today's price, CMG may still
be a little overvalued and might not provide an adequate return for
the risks involved.  I might even be a little generous in my the 
valuation I provided in my expected sceniaro.  While it is true that
if CMG achieves $17.94 in EPS by YE 2016, that will be a 22% 
compounded increase on EPS from YE 2011.  The market may not be
willing to believe that the growth story will continue and provide
a premiume (much like it appears to be doing today).

To get to my "E" numbers I had 2,416 units including approximately
15 European locations and 35 Canadian locations.  I also had
72 Shophouse units operating with similar economics to CMG
units.  So if you believe that 3,000 domestic units is about the 
saturation point for CMG, there would still be approximately 
750 units to build.  

To get to my "H" estimates, I had 2,781 units in the system. 
Inlcuded in that number were 250 Shophouse units operating
with similar economics as CMG and 100 international locations
with 1/4 in Europe and the rest in Canada.  

My "L" numbers were based off a unit count of 2,261.  There are
only 60 Shophouse and international locations combined.  

So if you believe like I do that CMG stock will be about 
$450/share in 4.5 years, I would like to see today's share price 
get to $275 before I would be buying.  This would provide an 
estiamted 12% CAGR for the next 4.5 years which I think is an 
acceptable estimated return for CMG. 

I also ran the 2017 estimates.  

                      
                         2017
                H            E          L
REVENUE     8,248,000  7,492,000   5,465,000 
NET INCOME    828,900    714,110     505,200 
EPS             25.28      21.80       15.40
VALUATION          35         25          15
SHARE PRICE    884.97     545.01      230.98
SP CAGR         22.2%      11.9%       -4.3%
 
So I will admit, I am not completely sure why the CAGRs for my
estimated share prices went up so much. I actually have slowing 
growth built into the E model due to the fact that new store 
openings will have a smaller impact on overall sales as the 
base gets bigger.  Yet, I look at these estimates and I can 
begin to make a case for purchasing CMG at today's levels. 

If anyone can explain this, I would appreciate it!

Conclusion

I think CMG is a well operated company with plenty of growth 
ahead of it.  I think the market was overvaluing this growth 
until Friday and now it is bringing the share price down to a 
level where purchasing shares may make sense.  I am long CMG
and will probably put a limit order in for a purchase of shares
around $275/share.  

Fool on!  

Bruiser
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