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No. of Recommendations: 7

I think you pulled the trigger to early on this growth story. I do believe that the P/E is high but I think the market is going to bid up a growth story like CMG until it stops beating expectations. In the last year CMG has had positive earning surprises of about 25% on average (the 2nd and 3rd quarters of 06 were approximately 33% and the 4th and 1st quarters were approxiamtely 18%. In total, the surprises resulted in additional positive earnings of .28 on a total estimte of $1.12 for the 4 quarters)

If you look at Est'd earnings for FY2007 and FY2008, the consensus is that CMG will earn $1.71 and $2.18 in those years. Using yesterday's closing price of 80.05 for "B" shares, you would have a TTM earnings P/E of 57 and P/E of 47 using estimated future annual earnings.

So, If CMG hits $1.71 and the market continues to value the shares at a similar level, we should see a price between $97.50 ($1.71 *57) and $102.50 (2.18*47) depending on what P/E ratio you use.

If Management holds true to form and has another positive surprise for us at the end of July and reports .52 instead of .44 as expected (18% surprise factor), I think you are probably going to see the "B" shares in 90s and would expect year end earnings to come in at $1.80 or better pushing the share prices to a range between $105 and $111.

If you beleive that the the P/E will go down a little to 50x TTM earnings or 40x forward earnings, you would get a range of $85.50 to $87.20/share. For "B" shareholders, the valuation on TTM earnings would have to fall below 47 before you would be losing money on a purchase made at last night's close.

I believe that even if management only meets this quarter's expected earnings of .44, the 33% growth Year over Year will continue to support a P/E of 50x or more TTM. However, if the 3rd quarter is only a meet (or worse a miss), this would probably lead to a share price decline that would result in a valuation of 45x or less leading into the 4th quarter reporting next February.

I have no crystal ball but I expect this stock to have a positive surprise with Q2 results and continue to beat expectations this year and next.

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