Chipotle: Montezuma Revenge?

The erosion of analyst expectations for Chipotle (CMG). Remember, stock prices follow earnings.

Cmg ace 20160105


Business Model Analysis


The reductions in sales forecasts and profitability (EPS) for 2015 and 2016 have put a dent in the trend.

Using the ACE growth estimate and reducing it by 33% as we do “across the board” the growth outlook could be imputed at (17.6%)(2/3) = 11.7%

The sales growth regression for (2013-2017) checks in at 14.9%. It’ll be interesting to see what Value Line does with the 3-5 year sales forecast if the mystery continues to persist in about a month.

Cmg model 2016016

Happy Thanksgiving!

This Week at MANIFEST (11/27/2015)

From All of Us to All of You, Happy Thanksgiving, Everybody!

Thanksgiving dinners take eighteen hours to prepare. They are consumed in twelve minutes. Half-times take twelve minutes. This is not coincidence. — Erma Bombeck

I can’t believe that I watched a Charlie Brown/Peanuts Thanksgiving for the first time last night. I’m not sure how that escaped me because a Charlie Brown Christmas is an annual event … and I’ve been known to spend some time in the Pumpkin Patch over the years.

It did serve as a reminder of the arduous voyage made by the Pilgrims across the Atlantic. In cramped quarters, the trip took three months on the Mayflower … and Charles Schultz laid out the cast in terms of crew, Pilgrims and “Strangers.” The term stranger was applied to those were “along for the ride” but not affiliated with the Pilgrim plight nor quest. Until recently, guests to the English Parliament were still referred to as strangers and their seating area known as the Stranger Gallery.

In our community, we celebrate those who invest with a true long-term perspective and frankly, everybody else seems a little strange. (Grin) As David Gardner pointed out recently, the phrase “long-term investing” is a tautology. It’s a mosh of redundancy because by definition, investing is long term.

Ken Kavula and I spent Monday night with another accomplished investment club of 26 years or more (and last Saturday with a couple of 55-year-old clubs) and we marvel at how most clubs welcome Strangers — those who seek the rewards and refuge from the storm … and they do “investing” with friends.

The journey is arduous and although we pay attention to short term influences on trends, we pay more attention to the long-term perspective and do all that we can do bolster the patience and discipline of the Pilgrims around us. As the holiday season approaches, and we all consume too much food on Thursday, we’re reminded that the survivors of the Atlantic crossing were largely children — steeped in optimism and certainly blessed with the most formidable long term expectations. Plymouth would be significantly influenced by the children. A foundation of optimism and sharing erupts when we invest like children.

And for that, we’re thankful. Happy Thanksgiving, Everybody!

Companies of Interest: Value Line

The average Value Line low total return forecast for the companies in this week’s update batch is 5.1% — pretty much in line with the 5.6% for the Value Line 1700.

Materially Stronger: Southwest Airlines (LUV), Restaurant Brands (QSR), Cintas (CTAS)

Materially Weaker: Frontline (FRO), WestJet Airlines (WJA-TO), Bristow Group (BRS), Copa Holdings (CPA), U.S. Ecology (ECOL), Clean Harbors (CLH), Huron Consulting Group (HURN)

Discontinued: ConWay (CNW)

Market Barometers

Value Line Low Total Return (VLLTR) Forecast. The long-term low total return forecast for the 1700 companies featured in the Value Line Investment Survey is 5.6%, unchanged from last week. For context, this indicator has ranged from low single digits (when stocks are generally overvalued) to approximately 20% when stocks are in the teeth of bear markets like 2008-2009.

Stocks to Study (11/27/2015)

  • Chipotle Mexican Grill (CMG) & Buffalo Wild Wings (BWLD) — Highest MANIFEST Rank
  • Fiesta Restaurants (FRGI) — Highest Low Return Forecast (VL)
  • Darden Restaurants (DRI) & Union Pacific (UNP) — Lowest P/FV (Morningstar)
  • Huron Consulting Group (HURN) — Lowest P/FV (S&P)
  • Golar LNG (GLNG) — Best 1-Yr Outlook (ACE)
  • Copa Holdings (CPA) — Best 1-Yr Outlook (S&P)
  • Ryder System ( R ) — Best 1-Yr Outlook (GS)

Note: The price targets from Goldman Sachs (GS) are from public releases and represent a partial sample. The price target is logged as of the most recent public analyst report. Although every effort is made to keep this information as current as possible, some of the ratings may not reflect more recent research and updates. Some of the older Goldman Sachs estimates (>6-9 months) have been adjusted using more recent price targets from Merrill Lynch, JP Morgan, Morgan Stanley etc.


Black Friday: LIVE at the Forum

Avoid the Madness of Crowds and the arm bar take downs while jostling for those three dirt cheap (and soon to be out-of-stock) LCD displays and share some time with your investing friends instead.

Note: For Manifest Investing subscribers and trial participants. You can start a 30-day FREE trial by creating an account at

We’ll “man” this folder continuously through the day — with a break for a Murder Mystery with the family at 1 PM ET — starting at 8 AM ET. It’ll be like “Open Microphone, Open Keyboard” but at a slower pace.

  • What’s On Your Mind?
  • What topic would you like to explore? Need some link references?
  • Is there a stock that we should we studying collectively?
  • Did you find the 50 Best Small Companies helpful? Did you study/buy any of them?

The format will be “almost live.” You may either post your questions in this folder or email topics/questions to and we’ll post answers, links, follow up questions right here on the Forum.

You may also tweet questions and topic requests to: @manifestinvest “Follow me!”

Black Friday Event: Live At The Forum November 27, 2015 at 8 AM ET

Bring your questions and topics to the Forum on Black Friday. Any thoughts on the Best Small Companies or any stocks of interest that we should collectively be taking a look at? Click in and let us know what’s on your mind.  Note: For Manifest Investing subscribers and trial participants. You can start a 30-day FREE trial by creating an account at

November Round Table November 30, 2015 at 8:30 PM ET ONLINE

Stocks likely to be discussed: TBD


Mark your calendar and save the date for our monthly discussion of actionable stock ideas.

If you have a stock or topic for discussion, please let us know.

Ira Sohn Stock Selections (2013)


About The Conference

Since 1996, the world-renowned Sohn Investment Conference has been the premier investment forum, bringing together the world’s savviest investors to share fresh insights and strategies in support of pediatric cancer research and treatment.

Wall Street’s best and brightest investors participate in this unique, “must attend” event to share their expertise with an audience of more than 3,000 people, comprised of portfolio managers, asset allocators and private investors. Most speakers manage large proprietary investment portfolios that have outperformed the market for many years and do not share their insights in any public forum, but they volunteer their time to the Conference for the benefit of the Foundation. All contributions support the Foundation’s mission to support pediatric research and care.

Notes From The Ira Sohn Conference 2013 (via Joshua Brown)

Motley Fool – Sohn Ideas

Gundlach shorts Chipotle, Einhorn goes OIS (Forbes)

WSJ’s Live Blog (Wall Street Journal)

Lincoln center sohn 2013

I wasn’t invited to share any investment ideas, at least not until next year — so here’s my 2013 Sohn Shopping List — we’ll take a look at some of these.

These screening results are based on:

  • MANIFEST Rank in top percentile (MANIFEST Ranking >= 99)
  • Positive Price Momentum (Rate-of-Change, ROC, technical indicator)
  • Positive Price Pressure (based on PnF price target vs. current price)

Sohn shopping 20130510

Here’s the roll call of selections based on $100 invested in each idea at the close on 5/7/2013 (immediately preceding the conference). Note that a number of selections are not covered (at least not yet) by MANIFEST and that the entries in red are short sale suggestions by Messrs. Chanos, Gundlach and Jacobson. It’s not unusual to see an event or listing of stocks like these hedge fund selections to include a number of Jeremy Grantham’s flaky stocks.

And Ackman’s selection of Procter & Gamble (PG)? C’mon, man. Ack. We can only assume he’s too preoccupied with his Icahn jousts to avoid phoning it in. Nothing against PG, great company, but at a return forecast in low single digits?

Mindray Medical (MR) is our entry with honorable mention to Fossil (FOSL) and Synchronoss Tech (SNCR).

Chipotle Mexican Grill (CMG)

Benzinga’s Tim Parker asks the best questions.

See: Chipotle, Buy Sell or Hold — Order Up!

As Tim points out, noted and notable investing celebrities David Einhorn and Jeff Gundlach both have questioned the future of Chipotle. In fact, they diss the burrito bonanza and compare Chipotle to Taco Bell, hissing a little while they nudge the guacamole around on their plates.

I question whether either of them have ever been to a Chipotle. The restaurants are pretty spartan … and last time I checked, there wasn’t any sign of wait staff adorned with towel over arm, refilling my water glass every time I take a sip. Maybe it’s the styrofoam vs. glass which makes it a little more challenging to detect water level?

Nothing against either one of these guys … not at all. They’re both great sources of ideas and inspiration and they both have a 3-taco plate full of notable achievements. But here I have to go with the college students and long lines forming at Chipotle to think that perhaps — just maybe — they’re a smidge wrong about this one.

Our take: Hold with a return forecast that’s pretty close to the average return for all stocks. (6-7%). And given the Speedy Gonzalez behavior and life cycle position of Chipotle, we’ll expect a siesta or two going forward… and yes, things will calm down over time. It’s a natural thing. And when it does, the stock price gets adjusted like a palate recovering from a hot sauce barrage from time to time.

Technical Analysis

As Tim suggests, the technical rendition looks pretty good. Here’s the really long-term look, focusing on monthly characteristics. There’s no clear and present danger of an RSI break (unlike the previous chapters) right now.

McDonald’s (MCD) vs. Chipotle (CMG)

Years ago, I’d spend Thursday nights with BOTH of my grandmothers watching Verne Gagne, The Crusher and All-Star Wrestling. Go ahead. Try and explain it. No matter — the living room rumbles were rare. Tonight’s cage match includes McDonald’s (MCD) and Chipotle (CMG) … Panera Bread (PNRA) and Starbucks (SBUX) come over the top rope to keep things interesting.

Yesterday, Benzinga’s Tim Parker posed the following question: McDonald’s (MCD) Had A Great Quarter — But Is Chipotle (CMG) A Better Buy?

The article included references to Panera Bread (PNRA) and Starbucks (SBUX) … so I thought this could be an interesting opportunity to use some of the tools and resources at Manifest Investing to answer the question.


It’s a fascinating matchup — the seasoned stalwart, veteran blue chip, McDonald’s (MCD) versus an up-and-comer that actually got its start in the McDonald’s training gym, Chipotle Mexican Grill (CMG). McDonald’s has the growth rate of a stalwart and CMG is “bringing it” expanding rapidly and showing promising execution. Operating results continue to be promising.

As shown in the following dashboard, the comparison suggests that return forecasts for all four companies, including contenders Panera Bread (PNRA) and Starbucks (SBUX) is slightly greater than the average market return forecast of 7.3% (MIPAR, median projected annual return).

From a long-term perspective, all four companies are at least a strong hold with Panera and Chipotle bordering on “buy.”

Incidentally, only 59 companies (out of a 2400-stock population) have a quality rating of 84.3 or higher — so we’re dealing with four top shelf companies for this battle.

Value Line Outlook

As shown here, the Value Line low total return forecasts are a little more subdued, particularly for Panera Bread (PNRA). The average low total return forecast (for the overall market) is 7.9% — so again, MCD, CMG and SBUX are basically priced at levels slated to generate “market returns” going forward.

More Second Opinions Heard From — S&P and Morningstar

A quick check of price-to-fair value (P/FV) ratios from Standard & Poor’s and Morningstar provides a couple more opinions. In this case, S&P doesn’t think any of the four companies are a bargain. (A price-to-fair value ratio less than 100% is a potentially undervalued stock.) In the current opinion of S&P, all four companies have P/FV ratios greater than 100%.

Morningstar is a little more giddy over Starbucks (SBUX) but even Morningstar would probably like to see a P/FV ratio approaching 80% — to provide some margin of safety.

Turning to the Judge’s Scorecard

It’s something of a split decision. All four companies are acceptable from a long-term perspective. The MANIFEST ranking is the combination of return forecast (PAR) and quality rating … and all four companies rank in the top 12% of all 2400 companies. All have excellent quality ratings and return forecasts at least slightly greater than the average return forecast.

But we like buying opportunities with some upside. And in this case, at least for what could be the short term, Chipotle (CMG) gets a standing 8-count with a bearish overall trend. There’s no way to make that up on the judge’s scorecard until some momentum is restored. McDonald’s (MCD) is clearly what the crowd is chanting with a sentiment rank head-and-shoulders above the other three.

Panera Bread is closest to being potentially oversold based on the relative strength index (RSI) approaching 30. McDonald’s is closer to overbought than oversold at 67.1.

In the end, all four fundamentally-based MANIFEST rankings are fine — but we roll up our batch of technical indicators into the Fusion Rank (which also includes the aforementioned MANIFEST ranking) and we see that Panera Bread (PNRA) gets the overall nod — ranking in the top percentile (99) based on both fundamental and technical analysis.