Merrill Lynch released their latest CMG analyst report on 9/5. Below are some of the highlights from the report by Rachael Rothman.- They are raising 2006 and 2007 EPS estimates to $1.04 for 06 and $1.27 for 07 on stronger than expected margin expansion. They are expecting $.24 for the current 3rd quarter.- Expect "limited overhang" on CMG stock from the MCD tax free exchange.- Rate CMG neutral. High relative valuation but above average SSS growth should support near term valuation.- Termination of MCD relationship may not have material impact. CMG is in process of negotiating prices with suppliers and distributors as a sole entity. Current Coca-Cola pricing will remain the same.- The great majority of growth (87%) in near term will be in existing markets. First half of 06 they added 5 units in new markets (NC, Detroit). Second half they will add 5-7 units in new markets.- Margin expansion is being driven by lower food costs and sales leverage.- Focus on Food with Integrity & customer experience is a positive. CMG is also working on improved designs to accommodate higher volume.Overall a pretty good report. I still think the analyst is being a bit conservative on the EPS estimates. Doing a basic conservative DCF with her numbers would say that CMG is fairly priced right now. I think CMG will suprise on the upside though with EPS and that the current price is slightly undervalued. Hope this helps some of you out there. I know finding good info & analysis on CMG is a bit tough right now.
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