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No. of Recommendations: 15
CMG Q4 and YE 09 and beyond Forecast

Based on this week’s earnings release and information from the conference call 
I think that we should recast our thoughts on CMG’s immediate growth as well
as well as long term growth.  Part of my research is based on the Barclay’s 
Capital research reports and part is based on my own model that I have  
developed to project CMG’s future earnings growth.  

	Q4 forecast in Millions	     Year Ended results in Millions
	09	08	YOY 	QOQ	09	08	YOY	
Revenue	390	345	13.1%	.75%	1,521	1,332	14.2%	
Cost			% of R				% of R	
  F,B,P	121.9	111.0	31.2%		471.5	432.0	31.0%	
  Labor	98.1	91.8	25.1%		383.5	351.0	25.2%	
  Occp.	30.1	28.4	7.4%		113.9	98.1	7.5%	
  Other	44.8	41.4	11.5%		173.5	164.0	11.4%	
Margin	95.5	72.8	24.5%	340bps  379.0	286.9	24.9% 340bps
  G&A	26.6	24.3	6.8%		100.6	89.2	6.6%	
  D&A	16.0	14.1	4.0%		61.3	52.8	4.0%	
  PreO	3.5	2.5	0.9%		9.5	11.6	0.6%	
  LODA	4.0	4.1	1.0%		8.8	9.3	0.6%	
Income	45.5	28.1			199.1	127.2	56.6%	
FIT			Rate				Rate	
Exp	17.4	11.1	38%		123.4	78.2	38%	
			YoY	QoQ			YoY	
Net Inc	28.2	17.0	66%	0.9%	123.4	78.2	58%	
WSO	32M	32.8			32.1	33.2		
EPS	.88	.52	70%		3.84	2.36	63%	

Q4 Analysis

I believe that Q4 is going to be a little less spectacular than the last two.  Any revenue
growth will probably be driven by new stores that have been in operation for 12
months or less.   SSS will be flat due to the lapping of last year’s pricing increase
and continued deceleration of customer visits.  
Margins should continue to be strong but probably not as strong as the past two
quarters. Restaurant margins of 24.5% will drive a Net Margin of 8% of revenue 
which is very good compared to prior periods and other restaurant companies.  
Factoring in the reduction of shares outstanding and you see the 70% increase in 
EPS is greater than the 66% increase in net income in Year over Year comparisons.
I predict that there will be 46 new stores opened in the quarter which will mean that
the total number of new stores for the year will hit the low end of management’s
guidance of 120-130 new stores.  

YE 2009 Forecast

Estimated revenue growth of 14.2% is pretty good when you think about how bad 
we all felt in March and April.  EPS growth of  63% is fantastic and something I 
don’t think we will see from CMG again for a while (more on that later).  2009 is
really all about management controlling variable costs at the restaurants and 
pricing increases keeping SSS in positive territory despite a decrease in traffic.  
Those two actions by management drove the EPS growth.   Final Net Margin
should come in around 8% vs. FY 08’s net margin of 5.9% and FY 07’s of 6.5%
New store development slowed in 2009 and I am estimating that there will be 957
Total stores opened at the end of the year or 14% growth from prior year.  This
slowing growth of new stores will have an impact on 2010 revenue growth.   

2010-2014 Forecast

Based on management’s comments it appears that they are done taking pricing 
increases for the foreseeable future which means that inflationary pressures 
should start to have a negative impact on margins as we move into 2010 and 
beyond.   Revenue growth is also going to be impacted by the expected flat
SSS growth.  If the only growth in revenue is going to come from new stores,
then revenue should only grow at 12% or so next year.  This will continue a 
trend of slowing revenue growth (07 YoY was 32%; 08 YoY was 23%; and I 
am expecting 09 YoY to be 14%).   If we project out to 2014, I think that the
top line for CMG will be $2,925M or approximately 14% CAGR over the next
5 years.  This revenue growth will be driven by the new store growth.  I project
that the number of stores at the end of 2014 will be 1,850 which will also be
14% CAGR.   While I don’t think we will continue to see 8% net margins, I do
think that management will take the appropriate measures to maintain strong
margins.  I put Net Income in 2014 at approximately 227M or 13% CAGR from
2009.   I also expect that outstanding shares will increase and EPS will be $6.50
in 2010.  That results in a CAGR of 11% over the next 5 years.   I doubt CMG
would earn a 23 PE (PE based on Friday’s CMG/B closing price) but that
would result in a price of approximately $150/share.  A lower PE of 20 would
result in a price per share of $130.  An even lower PE but more realistic of
15 would result in a price of $97.50/share or approximately a 4% CAGR from
Friday’s close.  

Potential Upside
Forecasting 5 years out is always difficult so I think there is a great deal of things
that could go differently.  Here are some things that I think could be positives.
First, management has already demonstrated that they will return free cash flow
to shareholders so it is possible that with lower demands on capital due to slower
development of new stores.  A dividend or another share repurchase plan could
be possible.  Also, positive SSS could lead to stronger revenue growth.  I have
only projected revenue growth that will track new store openings.  If the 
economy turns around, it is likely that SSS will actually be positive.  

My opinion on CMG is that it is probably a little overpriced right now given the
lack of clarity on when the macro economic situation will turn around.

Fool On!
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