Important disclosures appear on the last page of this report.

The Henry FundHenry B. Tippie School of ManagementAlec Davis [alec-davis@uiowa.edu]

Chipotle Mexican Grill, Inc. November 19, 2015Consumer Discretionary – Cyclical Goods & Services Stock Rating Buy

Investment Thesis Target Price $745-750

Chipotle has been at the forefront of the “fast casual” movement that hashelped redefine fast food over the past 2 decades. The recent slowdown insame store sales growth and a Q3 2015 e coli contamination issue has causedthe stock to pull back. We believe the fundamentals remain intact, and thecompany’s early stage development of international locations as well as thePizzeria Locale and ShopHouse Asian Kitchen concepts provide ample runwayfor growth. The current price provides an attractive opportunity to buy into anindustry leader that continues to deliver through strong management andoperational performance and we rate CMG a “buy”.

Drivers of Thesis CMG has been an unmatched success story in the restaurant industry and

international and new concept stores will drive 200+ store openings peryear for the next several years.

Operating margins are above industry averages and management’s trackrecord suggest they should be able to protect them moving forward.

Mobile ordering and catering delivery provide opportunities to growthsame store sales, already some of the highest in the industry at $2.5M perstore.

Risks to Thesis Same Store Sales Growth has slowed to low single-digits and further price

increases are not viable growth driver at this time.

Consumer preferences for higher quality ingredients and moresustainable sourcing practices have grown to scale that large restaurantchains are shifting behavior, threatening differentiation edge for Chipotle.

2015 E Coli outbreak traced to Chipotle could damage the company’sreputation for sourcing practices and better quality food.

Henry Fund DCF $750.53Henry Fund DDM $663.60Relative Multiple EPS $556.34Price DataCurrent Price $594.0052 Week Range $579.66-$758.61Consensus 1 YR Target $747.22Key StatisticsMarket Cap ($B) 18.20Shares Outstanding (M)Institutional OwnershipFive Year Beta

31.19M92%

.75

Price/Earnings (ttm) 36.44Price/Earnings (FY1) 34.10Price/Book (mrq) 7.95EV/EBITDA 18.44ProfitabilityEBITDA Margin 17.47%Profit Margin 10.84%ROIC (ttm) 21.16%Return on Equity (ttm) 25.08%

Source: Factset

Earnings EstimatesYear 2013 2014 2015E 2016E 2017E 2018EEPS $10.49 $14.35 $16.88 $18.24 $20.80 $23.05

growth 17.47% 36.80% 17.63% 8.06% 14.04% 9.76%12 Month Performance Company Description

Chipotle Mexican Grill, Inc. owns and operates theChipotle Mexican Grill Restaurants, which offerburritos and other Mexican inspired menu itemsin a fast-casual restaurant concept. The companypositions itself on the quality and sourcing of itsingredients compared to traditional fast foodalternatives. It also operates Pizzeria Locale andShopHouse Southeast Asian Kitchen restaurants.The majority of its restaurants are located in theUnited States, and the company is headquarteredin Denver, Colorado.

36.4

25.1

18.421.5 23.5

11.515.1 15.3

8.40

10

20

30

40

P/E ROE EV/EBITDA

CMG Industry Sector

-50%

-30%

-10%

10%

30%

50%

N D J F M A M J J A S O

CMG S&P 500

Source: Factset

Source: Yahoo Finance

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EXECUTIVE SUMMARY

Chipotle Mexican Grill has been an unrivaled growth storyin the US fast food restaurant industry, helping to pioneerthe concept of “fast casual” restaurants, which focus onbetter quality ingredients and a more upscale diningenvironment for a slightly higher price point.

The company has grown organically to over 1,900locations since 1994, all company owned, while at thesame time maintaining no debt on the balance sheet. Inaddition to Chipotle restaurants, the company is also in theearly development stages of two additional fast casualconcepts: ShopHouse Southeastern Asian Kitchen andPizzeria Locale, both of which could add significantly to thecompanies store base over the coming decade.

Concerns over same store sales growth and a recent E Colicontamination outbreak from stores in the PacificNorthwest have caused the stock to pull back recently. Webelieve however that these issues do not threaten the longterm viability of the company, and it will be successful inmaintaining operating margins above 17%.

Slowing sales growth, now at less than 3% y/y isconcerning but an inevitable function of the companyhaving grown to the size and scale it now enjoys. Webelieve this slowdown is also partially a result of ahangover from a successfully implemented 2014 priceincrease, making 2015 comps more difficult. The companyis exploring opportunities to continue to drive store salesby utilizing the already existing 2nd “make line” in the storeto fill mobile and catering orders.

Overall we see a company with a strong track record andthe ability to continue to growth top line revenue over 10%for at least the next 5 years. Although the stock still tradesat an industry premium due its growth momentum, webelieve the fundamentals in the concept and executionbehind this valuation are justified and the current pull backoffers an attractive entry point.

We rate Chipotle a “buy” with a target price of $750due toits excellent management culture, bright outlook forgrowth and strong balance sheet. The company continuesto change the way Americans approach fast food, andeasily dominates the market it helped create.

Company Description

Chipotle Mexican Grill, Inc. develops and operatesChipotle Mexican Grill Restaurants (“Chipotle”), a quickservice restaurant chain serving burritos, tacos, bowls(burritos without the tortilla) and other Mexican-inspiredcuisine. The company was founded on the principle ofdeveloping quick serve restaurants with an emphasis onhigh-quality ingredients, classic cooking methods anddistinctive interior design.

As part of its market strategy, the company is guided by its“food with integrity” belief, one that focuses on sourcingingredients that are grown or raised with respect for theenvironment, animals and people who grow or raise food.

As of Q3 2015 the company owns and operates a total of1,931 restaurants, most of which are located within theUnited States. The vast majority of these locations areChipotle restaurants, however the company is also in theearly stages of developing and opening its Pizzeria Localeand Shophouse Southeast Asian Kitchen restaurant, whichare similar fast casual concepts based on pizza and Asiancuisine respectively. All locations are owned by CMG or itssubsidiaries, and no franchise locations exist.

Chipotle Interior Featuring Menu and “make line”

Source: The Huntsville Times

In 2014 the company opened a total of 188 new stores,and in 2015 it will open approximately 210-215 newstores, the majority of which will continue to be Chipotlerestaurants in the United States, however the number ofother concept and international locations is increasing.

Chipotle restaurants offer several different menu optionsbased on Mexican-inspired cooking techniques andingredients. The core product offering is a burrito withchoice of meat and toppings, but these ingredients can

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also be used to create options such as tacos, salads andbowls (burritos without the tortilla). All Chipotle orders aremade to order and assembled in front of the customer onthe “make line”, with ingredient prep and cookinghappening in the back of the kitchen.

Compared to most traditional fast food restaurants,Chipotle offers a more limited menu and less-processedingredients. Most locations are open for both lunch anddinner, with a few select locations serving central businessdistricts operating only during the lunch hour.

Company Analysis

Chipotle has been a pioneering company in thedevelopment of the fast casual restaurant industry. Thisspace has grown significantly as consumer preferences forhigher quality, more fresh quick serve food has shiftedaway from traditional fast food chains such as McDonald’sand towards those in the fast casual space such as Chipotleand Panera Bread Company.

The company’s simplified menu, stream-lined orderingprocess and pre-cooked made-to-order food service allowit to handle heavy customer volume in its restaurants,which translates to industry leading operating margins. Allof its stores are also equipped with a second “make line”that can be used to process catering and large grouporders. Currently catering accounts for 1.4% of companysales. The company will look to expand catering sales inthe future by offering delivery through a selected partner.No details have been released thus far, and therefore wehave not incorporated any significant increase in cateringin our model.

Chipotle has approached restaurant development in aconservative nature relative to most restaurant chains thathave seen such large initial success. The company does notfranchise, has no debt on its balance sheet, and funds allcapital expenditures and store location openings withfunds from operations. Restaurant growth continues toaccelerate, with an estimated 210-215 new restaurantsprojected for 2015.

Source: Bloomberg

In total management has estimated a market potential of4,000 Chipotle restaurants within the United States, withthe current count approaching 50% of this estimatedmarket size. We expect to see an increasing mix oflocations outside the US as well as ShopHouse and PizzeriaLocale locations contributing to the new store count in thecoming years as the company continues to develop newmarkets and concepts. Our estimate is that combinedthese new store concepts could roughly double the marketsize for Chipotle owned restaurants.

Q3 2015 Restaurant Count

Chipotle ShopHouse Pizzeria LocaleUS 1,895 11 3Canada 11 0 0Europe 11 0 0Total 1,917 11 3

Source: CMG 2015 3Q 10Q

Recent Developments

E Coli Contamination

In October 2015 public health officials in Oregonconcluded that an outbreak of e coli was likely caused dueto contaminated produce consumed at Chipotlerestaurants in the state. In response, Chipotle temporarilyclosed 43 of its restaurants in Oregon and Washington asa precautionary measure. As of November 11th alllocations have now reopened.

While food contamination issues are significant challengesfor restaurants as they must battle public perception, thisis a risk for almost any company operating in the space.Given the prominence of Chipotle’s sourcing as part of its

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2010 2011 2012 2013 2014 2015E 2016E

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brand, this represents a significant risk for the company. Inaddition to store closures, the company has hired Seattlebased IEH Laboratories to help investigate the source ofcontamination.

We believe a one-time scare related to food safetyconcerns is something the company can overcome,however at this point the stakes are now significantlyhigher for any potential 2nd issue related to this. Whilestore closures in the northwest will hurt sales, we have notaltered our already moderate forecast of 0.5% same storesales growth for the quarter.

Pork Supply Issues

In January 2015 during a supplier audit Chipotle identifieda pork supplier that was not meeting the company’sstandards for the size and condition of housing offered topigs. The company therefore suspended purchases fromthis supplier, limiting its ability to source meat for itscarnitas pork offering in many of its US restaurants. Thesesupply issues resulted in the carnitas menu item beingremoved from the menus of roughly 1/3 of its restaurants.As of the end of Q3 2015 carnitas is now on the menu of90% of the company’s restaurants, and it expects it to befully implemented again in all restaurants by the end of theyear.

2015 Carnitas Menu Availability

Source: Chipotle.com

The pork supply issue highlights a dual concern forChipotle as it struggles to meet the supply chainmanagement demands of its growing restaurant empirewhile balancing its mission of “food with integrity” and thecompany’s brand image for healthy, sustainable food.These recent developments we believe support

management’s slow, steady growth strategy, as morerapid store expansions or franchising would prove to beextremely difficult to manage while maintaining thecompany’s values and branding.

The 2015 developments we believe are most likely one-time occurrences that the company will be able to putbehind itself, and do not reflect inherent managementstruggles or inability to manage its supply chain.Nevertheless the occurrences do put the company in amore exposed and riskier position, and moving forwardany further sourcing or food safety issues could seriouslyjeopardize the company’s growth and profitability.

Ingredient prices will continue to be a driver for Chipotleas its places a premium on the quality of its ingredients.We do not forecast any significant increases in cost ofgoods sold relative to food input costs over the forecastwindow as increased pressure pricing for its humanelyraised meats will be most off-set by lower avocado, dairyand grain prices moving forward.

2014 Price Increase

In late April of 2014 Chipotle began rolling out priceincreases across a majority of its US stores. Spurred in partby higher costs such as labor and for food items likeavocados and dairy, the price increases vary by item suchas 5% for chicken and 9% for beef.

The price increase has been viewed as a success with samestore sales % increasing in the mid-teens followingimplementation. Sales growth following this price increasewill become more difficult, as excluding the change, salesgrowth was modest in the low single digits over the pastyear, and continues to be so looking forward. Given thenature of the food product, we believe there is a limit towhat customers will be willing to pay for fast casual styleburritos, and therefore any near-term future priceincreases will be difficult.

The company does have additional opportunities forgrowth outside of price increases, such as increasedutilization of the 2nd make line. Catering remains a limitedpart of the company’s sales base due to the fact that itdoes not provide delivery options, however Chipotle iscurrently exploring partnership opportunities to be able tomake Chipotle catering available with delivery. We see thisas a potential opportunity to boost same store sales,

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provided the company can maintain product quality andsecure the right partnership.

While we do see opportunities for increased same storesales, we have modeled continued low single digit growthover the 5 year forecast window to reflect the uncertaintyaround execution of these potential strategies.

INDUSTRY TRENDS

The Rise of “Fast Casual”

For decades American fast food was pioneered on theprinciples of rapid order turn arounds, low cost, and variedmenu items. Heavily processed foods and kitchenautomation helped fuel this industry, however beginningin the 1990s consumer sentiments began to shift awayfrom these traditional fast food brands to conceptsoffering higher quality, less processed menu items, oftensold at a premium compared to historical fast food prices.

Chipotle has been a leader in this space, both helping todrive growth within the industry and consumer awarenessof ingredient quality and sourcing, as well as capturingmuch of the growth. The trend has also seen the rise ofother similar concepts within additional food spaces suchas Panera Bread Company, Cosi, Noodles & Company, andShake Shack, along with hundreds of smaller regional andlocal restaurants.

Source: Washingtonpost.com

Though no official definition exists to distinguish “fastcasual” from traditional fast food outlets, the mostcommon features are concepts that focus on less-processed food, higher quality ingredients, and mostimportantly, a higher average ticket price. According to aWashington Post article, industry experts identify fast

casual average ticket prices in the $9-$13 range ascompared to the $5 range more commonly associatedwith fast food restaurants. Despite higher ingredient costs,thus far consumers have shown a willingness to pay apremium for what they perceive as better quality, fresher,and oftentimes more sustainable food options.

Thus far the shift in consumer sentiment shows no signs ofslowing down, and the fast casual industry continues togrow well above the pace of the fast food industry overall.The biggest risk to players such as Chipotle in this spacelikely lies not in any changes in consumer behavior, butrather in competition from traditional fast food companiesas they adjust their menus and brands to reflect this newconsumer outlook.

Companies such as McDonalds are now responding byupgrading menu items, sourcing policies and redesigningrestaurant interiors to a more modern and inviting look.While these initiatives do pose a threat to Chipotle and itsfast casual brethren, given the size of operations for chainssuch as McDonalds, Wendy’s or Subway, the turnaroundwill likely be lengthy and difficult. The fact that many ofthese establishments are franchise outposts will also addto the challenge. In 2015 McDonalds announced its plan tostop sourcing chicken raised with human antibiotics,however it will not be able to fully implement this policyuntil 2017 at the earliest.

Mobile Ordering

Similar to just about every other consumer driven industryin the world, the shift to mobile continues to driveinvestment and executive focus in the restaurant world.Companies are looking to capture consumers desire to beable to electrically place their food orders and either havethat order delivered, or at a minimum be ready for pick-upat a location without having to wait in line to order andpay.

Chipotle has been involved in this shift, but at best as amiddle of the road participant, neither as a leader orlaggard. Currently digital sales make up 5% of total sales, afigure the company hopes to expand in the future. Thisrepresents an opportunity for Chipotle, where in manybusy locations consumers are often discouraged by longlines and move on to other options. However, byemploying mobile ordering and the second make linewithin the restaurant, Chipotle can increase the salesthroughput for its existing restaurants during peak hours.

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To facilitate this transition, the company announced inOctober 2015 the hiring of its first ever Chief InformationOfficer, Curt Garner, who previously had been withStarbucks, one of the first large national chains to enjoysuccess in mobile ordering roll out.

Chipotle’s success in capturing mobile ordering growth willbe important not only in retaining consumers in acompetitive restaurant environment that is shiftingtowards increasing mobile options, but in continuing todrive sales growth in its often heavily utilized storefronts.At time our forecasts are for increased mobile ordering tobe minimally accretive to same store sales, but this couldrevise upward if it proves successful in improving peakhour throughput.

We view the hiring of Garner as a positive indication thatthe company is not only focused on informationtechnology and mobile ordering, but in ensuring that thecustomer experience through this new platform remainsup to Chipotle’s current standards.

Rising Labor Costs

The fast food industry has been in the spotlight recently aspart of the national debate over the issue of minimumwage laws and the impact of proposed changes on theeconomy and workers’ finances.

Fast food outlets have traditionally operated on the verylow end of the wage scale, often employing a significantportion of the workface at or around minimum wage. Thispractice has drawn scrutiny from labor groups and otheractivists who claim that companies do not pay a livingwage for jobs that now make up the majority of income formany of their workers. Increased pressure from theseactivities have helped push through local increases in theminimum wage in markets such as San Francisco andSeattle.

While Chipotle has traditionally paid above minimumwage, the increases in the minimum wage in thesemarkets has forced the company to increase wages inselect markets such as San Francisco and Seattle. Inaddition, an increasingly tight US job market is puttingpressure on wages as the company works to attract andretain enough workers to meet its operation and growthplans.

The labor market for fast food restaurants will likelyremain competitive for the next few years, and we expect

wage expense to increase across the board for mostcompanies in this space. We anticipate Chipotle to be lessaffected compared to its traditional fast food peers due toits already higher wages and its strong management andpromotion from within culture, which helps provide anincentive for workers to join and remain within theChipotle corporate sphere.

Markets and Competition

The fast food industry is a mature and competitive marketwithin the United States, however Chipotle’s ability to helpdrive the formation of the fast casual segment has inessence created a new market from which the chain hasspurred its growth.

While the company competes with all quick serverestaurants in the US, it has differentiated itself in a spacetraditionally dominated by large players such asMcDonalds, Subway and YUM Brands (KFC, Pizza Hut, TacoBell) by offering food perceived by customers as beingbetter quality, fresher, and with more sustainably sourcedingredients. Although Chipotle’s menu items come at aprice premium relative to these competitors, Americanconsumers have increasingly shown a willingness to pay apremium for what they perceive as a higher quality quickserve dining experience.

There are several other Mexican-inspired fast food chainsoperating in the US, notably burrito shop Qdoba, inaddition to Taco Bell (YUM), Taco John’s, and Del Taco(TACO), however all of these operate in the traditional fastfood model. Chipotle’s growth has far exceeded theseother establishments over the past decade.

In the fast casual space is where Chipotle will find its mostdirect peers and competitors for the higher end quickserve diner. Several other major restaurants have beenexpanding in this space, notably Panera Bread Company,Cosi, Noodles and Company, and Shake Shack. Thoughthey offer very different menu items, the differentiationstrategy and pricing points amongst these companies issimilar.

Chipotle has far outpaced the success of these comparablepeers while at the same time continuing to take marketshare from traditional fast food establishments. The fastcasual segment has grown from less than 1% of theindustry to now 5%, and we expect this figure to continueto rise.

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We view the biggest competitive risk to Chipotle as theshift in strategy amongst the major fast food chains toattempt to attract more fast casual customers. Effortsmade by these companies to upgrade menu items and in-store experiences is an attempt to blur the line betweentraditional fast food and fast casual, and should they besuccessful, the size and scope of their existing restaurantnetworks could immediately impact sales for Chipotle.While we believe Chipotle has succeeded in creating astrong moat around its brand, and the size and speed ofchange at the largest American chains will mean thesethreats are still years off in the future, it does remain a riskfor Chipotle’s long term success.

Another risk is the continued trend to attract customers atall points through the day and maximize store salesthrough variety. This has been witnessed with Taco Bell’ssuccessful roll out of a breakfast menu and McDonald’sswitch to all-day breakfast offerings.

Chipotle has made no indications of considering breakfastitems or an expanded menu, and we support this decisionas the company’s core strength is a fresh and simple menu.The trend towards offering more items throughout the daygoes against the company’s strategy, and will likely provea challenge for its competitors as they work to managemore complex supply chains and operations. The risk toChipotle however is that if successful, these competitorshave the ability to draw away consumers through theirenhanced menu offerings.

Peer Comparisons

Chipotle has experienced a growth story unparalleled inthe restaurant space, which makes direct peercomparisons difficult to make. The company operates withhigher margins and larger growth prospects than almostevery other large US quick serve restaurant chain.However despite its growth, the company still operatesonly a fraction of the number of stores compared to largeplayers such as McDonalds, Subway and YUM Brands.

From a valuation perspective, a better comparison iswithin the fast casual space, where publicly tradedcompanies such as Panera Bread Company and ShakeShack are attempting similar growth and differentiationstrategies.

CMG TACO PNRA YUM PBPB SHAK

Rev ($B) 4.1 0.4 2.5 13.3 0.3 0.2Mkt Cap($B)

18.9 0.5 4.4 30.5 0.4 1.7

PE (12/15) 35.1 25.5 28.8 22.4 43.5 147.3EV/Sales 3.9 4.6 1.7 2.5 0.9 9.2EV/EBITDA 18.4 - 12.0 15.1 2.3 -P/Book 7.87 1.26 7.83 16.73 10.82 14.83GrossMargin (%)

27.6 22.8 20.4 26.2 71.5 71.7

EBITDAMargin (%)

21.6 15.2 14.9 21.1 9.0 17.9

NI Margin(%)

11.7 0.2 6.1 10.3 2.4 2.3

ROIC 25.7 2.1 22.6 19.7 2.9 -Number ofLocations 1,783 547 1,880 40,233 363 75Sales perstore ($M)

2.50 0.77 1.35 0.33 0.90 2.32

Fast casual restaurants typically generate a higher salesper store, and Chipotle is no exception to this. Its $2.5M insales per store is one of the highest in the industry, and weexpect this number to remain steady as the company hasa proven track record of opening and operating successfuland profitable stores.

While CMG trades at a premium relative to most of itspeers, we believe this valuation is easily justified whencomparing the company’s sales per store, margins andnew store openings. Additionally, as the brand becomesmore prominent, Chipotle is able to securing better leasingterms and locations as its stores are often now consideredprime tenants for commercial real estate openings.

ECONOMIC OUTLOOK

We have a favorable economic outlook for Chipotle, drivenby strength of the US economy and continued shifts inconsumer purchasing behavior that favors Chipotle overtraditional fast food restaurant establishments. Thecompany operates almost entirely within the UnitedStates, and our 2 year growth outlook for moderate GDPgrowth, higher discretionary income, and strong consumerconfidence should provide a strong operatingenvironment for Chipotle. Even with its higher pricepoints, consumers continue to choose Chipotle over otherfast food options, and the company’s continued growthduring the recession demonstrates its ability to surviveduring weaker economic conditions as well. We forecast

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these economic conditions will allow the company to meetits growth targets for over 200 stores in 2015 and 2016,and forecast this pace to continue through our 5 yearwindow.

Our outlook for same store sales growth is in line with ourprojected US GDP growth of 2-3%. While we expect thefast casual space to grow faster than GDP over the forecasthorizon, the competitive environment will increase asmore company’s shift operational focus towards thisspace.

At this time foreign transactions make up a negligible partof sales, however we forecast this percentage to grow asthe company begins to get a foothold in Europe. Thecurrent strong dollar environment could provide a boostto foreign earnings in 2017 or 2018 if currency trendsreverse and foreign stores increase, however we have notincluded any scenario in our model as the plan for foreignstore openings has not been communicated.

Low prices for commodities will also be beneficial for foodinput costs as grain, dairy and shipping costs have all comedown over the past year. We expect some of this to be off-set by rising wages, leading to operating marginsincreasing 27 bps from 2014 to 2018.

CATALYSTS FOR GROWTH

The success of Chipotle’s restaurants and popularity of itsmenu items has been the primary driver for growth byitself for the company. Store openings over the pastdecade have primarily been limited by the company’sconservative strategy of not opening up to franchising andonly opening locations when it has the managementcapability to ensure success. We expect this trend tocontinue as the company nears 50% of its estimatedmarket size and begins to explore other restaurantconcepts.

The new ShopHouse Asian Kitchen and Pizzeria Localeconcepts could provide the biggest catalysts for growthdomestically for Chipotle. These concepts are still in the“nurturing” phase as management continues to test theirviability and fine tune the offerings, however when theconcepts are deemed ready, each could offer a potentialmarket size on par with the Chipotle restaurantsthemselves.

International expansion could be another catalyst forgrowth as the company begins to establish brand

awareness in select major cities in Europe. Onceestablished, and with a proper management team in place,the opportunities for expansion in these markets couldgreatly expand the potential market size for Chipotle.

Finally, within existing stores in the US, mobile sales,delivery of catering, and increased utilization of the 2nd

make line provide opportunities to drive sales withinexisting locations and continue to maximize revenuepotential of the current store footprints. Should theseinitiatives be successful, this could lead to same store salesgrowth above our current model estimates of 2-3% peryear.

INVESTMENT POSITIVES

CMG is the best growth story in the US restaurant spaceand continues to grow locations above 10% whilecarrying no debt on its balance sheet.

The company commands industry leading EBITDAmargins over 20%, funds all new store openings throughcash from operations, and is increasingly able tocommand better lease terms due to the strength of itsbrand.

A management culture of promotion from within hashelped build a strong bank of talented managers andprovides incentives for new employees to stay with thecompany.

INVESTMENT NEGATIVES

Same store sale growth has slowed to low single digitsand the company has little room for price increases atthis point in time.

Despite the recent pull-back the stock still trades a P/Emultiple close to 30 and will need to continue stronggrowth in an increasingly competitive environment tojustify the price.

Larger restaurant chains are beginning to notice the shiftin consumer behavior and are shifting strategies in anattempt to capture sales lost to fast casual brands suchas Chipotle.

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Valuation

A 5 year forecast window was used for DCF and DDMvaluation methods. New store openings were forecast at213 for 2015, 230 for 2016 and 240 in 2017 and then aslight decline in openings after that. No specific forecastingwas made on store type mix or geographic location as thecompany has not provided this guidance, however weanticipate that these future openings will include agrowing number of ShopHouse, Pizzeria Locale, andinternational Chipotle locations.

Same store sales growth was forecast in the low singledigits for the 5 year forecast window as we believe thecompany has reached the upper tier of its ability to pricecurrent menu items. Future growth in catering or mobileorders that could be used to increase 2nd make lineutilization or throughput during peak hours could be anadditional catalyst to this growth.

Cost of Sales is expected to remain relatively flat, withsome modest margin compression due to increasedcompetition and limitations on increasing menu pricing.For 2015 gross margins are expected increase by 22 bpsdue to lower food commodity prices, primarily in avocadosand dairy. This will be partially offset by rising wageexpense which is expected to increase in 2016 along withhigher depreciation expense related to increased capitalexpenditures. Stock repurchases were modeled at $150Ma year to reflect a continuation of the company’s policy tobuy back approximately the same number of shares issuedthrough the employee stock option program.

SGA expense for 2015 will be lower as there is no biennialmanager’s conference this year, however it will increaseagain in 2016. Overall we forecast a slightly decreasingexpense % trend for SGA as the company continues togrow topline revenues at double digits throughout the 5year forecast window.

Capital expenditures for 2015 were set in line withmanagement guidance, reflecting a lower level than 2014due to the previous year purchase of a corporate jet.Looking forward, capex and operating leases are expectedto grow at or slightly below new store openings, reflectingthe company’s growth prospects, but also its ability tosecure more favorable lease terms.

A beta of .7 was used for WACC calculations, which reflectsthe 5 year monthly beta for the stock. Our fund market

premium is 4.85%, which yields a final cost of equity of6.49%. As CMG does not carry any debt on its balancesheet, the company is approximately 90% equity financed,with the remaining 10% coming in the form of operatingleases, to which a AAA corporate spread was applied forthe cost of debt equal to 4.1%. This yields a final WACC of6.05%. Final year ROIC was 18.88%.

For DCF valuation, a terminal growth value of NOPLAT of3% was modeled following the 5 year forecast window.This yields a target price of $750.53. For DDM valuation,terminal value of 5% for EPS growth was modeled alongwith an ROE of 18.30% and a cost of equity of 6.49%,yielding a target price of $663.30. No change in capitalstructure was forecasted as the company has not indicatedany intentions to take on long term debt at this time.

Relative P/E multiple valuation remains difficult forChipotle as true comps are tricky to find. At a forward P/Eof 34 the company trades at a premium relative to mostother fast food restaurant companies, however both thegrowth history and outlook for Chipotle is much greaterthan almost any of its peers. The current relative P/Evaluation of $556.34 reflects the lower multiples morecommon in the fast food industry. We feel this valuation isthe least applicable as Chipotle remains an outlier withinits space. The company’s most direct comp is likely PaneraBread, which trades at a multiple of 29, however webelieve Chipotle is justified in its higher valuation due tohigher sales per store and a bigger growth runway.

KEYS TO MONITOR

Important keys to monitor for Chipotle will be same storesales growth and new store openings. Our forecasts forlow single-digit same store sales growth still make this anattractive investment, however Chipotle must work tokeep growth continuing in light of an increasingcompetitive environment for fast casual diners.

New store openings are also key to the company’s successas it continues to expand its US footprint while exploringinternational and new concept markets. While we havenot forecasted specific store type or location openings, weexpect that the ShopHouse Kitchen, Pizzeria Locale, andinternational Chipotle restaurants will continue to makeup a larger percentage of store openings moving forward.If the company fails to deliver on growth targets for newstores set at over 200 per year for the next 5 years, thiscould jeopardize our investment thesis.

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We also expect that within 5 years the company will beable to move forward with more aggressive expansionplans for either the ShopHouse Kitchen and/or PizzeriaLocale concepts, and bring one or both out of nurturingphase and into full development.

REFERENCES

1. Bloomberg Terminal2. Factset.com3. Chipotle 2014 10K4. Chipotle 2015 3Q 10Q5. “Chipotle Hires Food Safety Consultants to Cope

with Health Scare” -http://www.bloomberg.com/news/articles/2015-11-03/chipotle-hires-food-safety-consultants-to-cope-with-health-scare

6. “Chipotle Resumes Suspended Pork Sales at Mostof Its Restaurants” -http://www.wsj.com/articles/chipotle-resumes-suspended-pork-sales-at-most-of-its-restaurants-1443450594

7. “Chipotle Raises Prices, America Orders MoreBurritos” -http://www.bloomberg.com/bw/articles/2014-07-21/chipotle-raises-prices-america-orders-more-burritos

8. “The Chipotle Effect: Why America is Obsessedwith Fast Casual Food”https://www.washingtonpost.com/news/wonk/wp/2015/02/02/the-chipotle-effect-why-america-is-obsessed-with-fast-casual-food/

9. “Chipotle Earnings Growth Plan” -http://fortune.com/2015/10/21/chipotle-earnings-growth-plan/

10.

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Henry Fund reports are created by student enrolled in theApplied Securities Management (Henry Fund) program atthe University of Iowa’s Tippie School of Management.These reports are intended to provide potential employersand other interested parties an example of the analyticalskills, investment knowledge, and communication abilitiesof Henry Fund students. Henry Fund analysts are notregistered investment advisors, brokers or officiallylicensed financial professionals. The investment opinioncontained in this report does not represent an offer or

solicitation to buy or sell any of the aforementionedsecurities. Unless otherwise noted, facts and figuresincluded in this report are from publicly available sources.This report is not a complete compilation of data, and itsaccuracy is not guaranteed. From time to time, theUniversity of Iowa, its faculty, staff, students, or the HenryFund may hold a financial interest in the companiesmentioned in this report.

Chipotle Mexican GrillKey Assumptions of Valuation Model

Ticker Symbol CMGCurrent Share Price $594.00Current Model Date 11/17/2015Fiscal Year End Dec. 31

Pre-Tax Cost of Debt 4.25%Cost of Debt 4.10%Cost of Equity 6.49%WACC 6.05%Beta 0.70Risk-Free Rate 3.09%Equity Risk Premium 4.85%CV Growth of NOPLAT 3.50%CV Growth of EPS 4.00%Current Dividend Yield 0.0%Effective Tax Rate 38.6%DCF Price $750.53DDM Price 663.30$

Revenue DecompositionChipotle Mexican Grill(millions)Fiscal Years Ending Dec. 31 FY2012 FY2013 FY2014 FY2015 FY2016E FY2017E FY2018E FY2019ERestaurant Sales $ 2,731 $ 3,215 $ 4,108 $ 4,688 $ 5,288 $ 6,020 $ 6,767 $ 7,562

20.3% 17.7% 27.8% 14.1% 12.8% 13.9% 12.4% 11.7%

Number of Stores 1,410 1,595 1,783 1,996 2,226 2,466 2,697 2,923$ per store $ 1.937 $ 2.015 $ 2.406 $ 2.47 $ 2.51 $ 2.57 $ 2.62 $ 2.69# New Stores 180 185 188 213 230 240 231 226% Increase Sales per Store Y/Y 5.0% 4.0% 19.4% 2.5% 1.8% 2.3% 2.2% 2.5%

Income StatementChipotle Mexican Grill(millions)Fiscal Years Ending Dec. 31 FY2012 FY2013 FY2014 FY2015E FY2016E FY2017E FY2018E FY2019ETotal Revenue $ 2,731 $ 3,215 $ 4,108 $ 4,688 $ 5,288 $ 6,020 $ 6,767 $ 7,562

COGS excluding D&A 1,990.88 2,359.82 2,990.51 3,399.51 3,839.44 4,380.25 4,933.98 5,511.44Depreciation & Amortization Expense 84.13 96.05 110.47 128.80 158.51 169.61 181.48 197.82Gross Income 656.210 758.715 1,007.276 1,159.405 1,289.719 1,470.499 1,651.215 1,852.423

SG&A Expense 195.56 219.97 289.69 283.37 351.93 394.34 451.14 507.28EBIT (Operating Income) 460.65 538.75 717.59 876.04 937.79 1,076.15 1,200.07 1,345.14

Nonoperating Interest Income 1.82 1.75 3.50 3.93 4.47 5.07 5.71 6.37Equity in Earnings of Affiliates 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Other Income (Expense) (5.03) (7.97) (6.98) (4.38) (9.32) (10.50) (10.55) (11.54)Interest Expense 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Unusual Expense - Net (0.24) (1.94) (0.18) 3.55 0.00 0.00 0.00 0.00Pretax Income 457.45 532.53 714.11 875.58 932.94 1,070.73 1,195.23 1,339.97

Income Taxes 179.69 207.03 268.93 348.69 360.12 413.30 461.36 517.23Net Income 277.76 325.50 445.18 526.90 572.83 657.43 733.87 822.74

EPS (recurring) $ 8.93 $ 10.49 $ 14.35 $ 16.88 $ 18.24 $ 20.80 $ 23.05 $ 25.66Total Shares Outstanding 31.09 31.03 31.03 31.21 31.40 31.61 31.83 32.07

Chipotle Mexican GrillBalance Sheet(millions)Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019EAssetsCurrent assets:Cash & Short-Term Investments 472.86 578.17 758.06 1,177.56 1,600.47 2,108.79 2,686.53 3,358.51Short-Term Receivables 26.41 27.67 51.33 47.22 53.26 60.64 68.16 76.17Inventories 11.10 13.04 15.33 18.42 20.78 23.65 26.59 29.71Other Current Assets 36.24 47.42 53.76 60.34 68.06 77.49 87.10 97.33Total current assets 546.61 666.31 878.48 1,303.54 1,742.57 2,270.59 2,868.38 3,561.73

Gross Property and Equipment 1,311.62 1,490.64 1,720.66 1,955.66 2,214.16 2,498.51 2,805.61 3,131.13less: accumulated depreciation 444.92 527.40 613.68 742.48 900.99 1,070.60 1,252.08 1,449.90

Property and equipment, net 866.70 963.24 1,106.98 1,213.18 1,313.17 1,427.91 1,553.53 1,681.24Long Term Investments 225.70 337.67 516.00 531.47 547.42 563.84 580.76 598.18Intangible Assets 21.94 21.94 21.94 21.94 21.94 21.94 21.94 21.94Deferred Tax Assets 88.26 104.25 139.49 146.46 153.78 161.47 169.55 178.02Other Assets 7.71 20.12 22.89 22.89 22.89 22.89 22.89 22.89Total Assets 1,756.93 2,113.53 2,685.77 3,239.49 3,801.78 4,468.64 5,217.04 6,063.99

Liabilities and EquityCurrent Liabilities:ST Debt & Curr. Portion LT Debt 0.14 0.00 0.00 0.00 0.00 0.00 0.00 0.00Accounts Payable 58.70 59.02 69.61 82.75 93.34 106.28 119.45 133.48Income Tax Payable 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Other Current Liabilities 128.01 140.21 176.10 214.66 242.14 275.69 309.86 346.27Total Current Liabilities 186.85 199.23 245.71 297.41 335.48 381.96 429.31 479.75

Long-Term Debt 3.39 0.00 0.00 0.00 0.00 0.00 0.00 0.00Liability for Post Employment Benefits 10.04 13.40 16.15 16.95 16.62 16.28 15.96 15.64Deferred Tax Liabilities 137.21 159.68 180.02 189.02 198.47 208.39 218.81 229.75Other Liabilities 173.52 202.93 231.53 294.89 332.63 378.73 425.67 475.69Total Liabilities 511.00 575.24 673.40 798.28 883.19 985.36 1,089.75 1,200.83

Equity:Common Stock Par/Carry Value 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35Additional Paid-In Capital/Capital Surplus 816.61 919.84 1,038.93 1,090.88 1,145.42 1,202.69 1,262.83 1,325.97Retained Earnings 949.46 1,276.90 1,722.27 2,249.17 2,821.99 3,479.42 4,213.29 5,036.03Cumulative Translation Adjustment/Unrealized For. Exch. Gain1.02 1.62 (0.43) (0.43) (0.43) (0.43) (0.43) (0.43)Treasury Stock (521.52) (660.42) (748.76) (898.76) (1,048.76) (1,198.76) (1,348.76) (1,498.76)Total Equity 1,245.93 1,538.29 2,012.37 2,441.21 2,918.58 3,483.28 4,127.28 4,863.17Total Liabilities & Stockholders Equity 1,756.93 2,113.53 2,685.77 3,239.49 3,801.78 4,468.64 5,217.04 6,063.99

Chipotle Mexican GrillCash Flow Statement(millions)Fiscal Years Ending Dec. 31 2010 2011 2012 2013 2014

Net cash provided by operating activities 289.19 411.10 419.96 528.78 682.07 Net income 178.98 214.95 278.00 327.44 445.37 Adjustments to reconcile net income to cash from Operating activities 92.40 98.02 63.73 130.71 171.67 Depreciation and amortization 68.92 74.94 84.13 96.05 110.47 Current income tax benefit / provision -- -- -- -- -- Deferred income tax benefit / provision 10.48 11.94 (18.06) 2.10 (20.67) Loss on disposal of assets 6.30 5.81 5.03 6.75 6.98 Bad debt allowance (0.15) 0.24 1.05 0.02 0.01 Stock-based compensation expense 21.38 41.38 64.28 63.66 96.44 Excess tax benefit on stock-based compensation (14.53) (38.79) (73.21) (38.38) (21.67) Other 0.00 2.50 0.52 0.51 0.10 Changes in operating assets and liabilities 17.81 98.14 78.23 70.63 65.03 Accounts receivable (0.74) (2.97) (9.44) (7.24) (10.97) Inventory (1.48) (1.82) (2.18) (1.95) (2.31) Prepaid expenses and other current assets (1.63) (5.40) (5.95) (6.81) (0.66) Other assets (8.96) (7.35) (20.54) (1.35) 1.07 Accounts payable 6.99 9.43 7.85 2.05 2.17 Accrued liabilities 16.61 17.45 21.31 12.02 35.02 Income tax payable / receivable (13.21) 66.56 59.36 44.33 8.83 Due from / to McDonald's Corp. -- -- -- -- -- Deferred rent 17.26 19.62 23.77 25.72 27.03 Other long-term liabilities 2.97 2.61 4.06 3.86 4.85Net cash used in / provided by investing activities (189.88) (210.22) (355.50) (428.32) (518.84) Purchases of leasehold improvements, property and equipment (113.22) (151.15) (197.04) (199.93) (252.59) Acquisition of interests in equity method investment (1.90) (0.59) -- -- -- Purchases of investments (125.00) (183.25) (213.46) (387.64) (521.00) Maturities of investments 50.23 124.77 55.00 159.25 254.75 Franchise acquisitions -- -- -- -- --Net cash used in / provided by financing activities (94.52) (24.27) (143.53) (100.35) (66.74) Net proceeds from sale of common stock -- -- -- -- -- Costs of issuing common stock -- -- -- -- -- Acquisition of treasury stock (126.60) (63.51) (217.09) (138.90) (88.34) Proceeds from former parent company under tax sharing agreement -- -- -- -- -- Excess tax benefit on stock-based compensation 14.53 38.79 73.21 38.38 21.67 Proceeds from McDonald's-intercompany notes -- -- -- -- -- Payments to McDonald's-intercompany notes -- -- -- -- -- Changes in cash overdrafts -- -- -- -- -- Proceeds from deemed landlord financing -- -- -- -- -- Payments on deemed landlord financing (0.10) -- -- -- -- Stock plan transactions and other financing activities 17.65 0.45 0.35 0.17 (0.07) Proceeds from employee stock plan transactions 17.65 0.57 -- -- -- Other financing payments excluding proceeds from ESOP -- (0.12) -- -- --Effect of exchange rate changes on cash & cash equivalents 0.48 (0.21) 0.38 0.54 (0.22)Net change in cash and cash equivalents 5.27 176.41 (78.69) 0.65 96.26

Cash and cash equivalents at beginning of period 219.57 224.84 401.24 322.55 323.20Cash and cash equivalents at end of period 224.84 401.24 322.55 323.20 419.47

Chipotle Mexican GrillCash Flow Statement(millions)Fiscal Years Ending Dec. 31 2015E 2016E 2017E 2018E 2019ECash Flows from Operating Activities:Net income (loss) 526.90 572.83 657.43 733.87 822.74Adjustments to reconcile net income to net cash from operating activities:Depreciation 128.80 158.51 169.61 181.48 197.82Adjustment for Deferred Taxes 2.03 2.13 2.23 2.35 2.46

Net Cash Flows from Operating Activities 657.72 733.47 829.27 917.70 1,023.02Working CapitalShort-Term Receivables 4.11 (6.04) (7.38) (7.52) (8.01)Inventories (3.09) (2.36) (2.88) (2.93) (3.12)Other Current Assets (6.58) (7.72) (9.43) (9.61) (10.23)Accounts Payable 13.14 10.59 12.93 13.17 14.03Income Tax Payable 0.00 0.00 0.00 0.00 0.00Other Current Liabilities 38.56 27.47 33.55 34.18 36.40Net Cash Flows from Working Capital 46.14 21.94 26.79 27.29 29.07

Capital Expenditures (235) (259) (284) (307) (326)Long Term Investments (15) (16) (16) (17) (17)Intangible Assets 0 0 0 0 0Other Assets 0 0 0 0 0Liability for Post Employment Benefits 0.81 (0.34) (0.33) (0.33) (0.32)Other Liabilities 63.36 37.74 46.09 46.95 50.01Net Cash Flows from Investing Activities (186) (237) (255) (277) (293)

Cash flows from financing activities:ST Debt & Curr. Portion LT Debt - - - - -Long-Term Debt - - - - -Common Stock Par/Carry Value - - - - -Additional Paid-In Capital/Capital Surplus 51.95 54.54 57.27 60.13 63.14Cumulative Translation Adjustment/Unrealized For. Exch. Gain - - - - -Stock Repurchase (150.00) (150.00) (150.00) (150.00) (150.00)Net cash flows from financing activities (98) (95) (93) (90) (87)

Net increase (decrease) in cash & cash equivalents 420 423 508 578 672Cash & cash equivalents at beginning of year 758 1,178 1,600 2,109 2,687Cash & cash equivalents at end of year 1,178 1,600 2,109 2,687 3,359

Income StatementChipotle Mexican Grill

Fiscal Years Ending Dec. 31 FY2012 FY2013 FY2014 FY2015E FY2016E FY2017E FY2018E FY2019ETotal Revenue 100% 100% 100% 100% 100% 100% 100% 100%

COGS excluding D&A 72.89% 73.41% 72.79% 72.52% 72.61% 72.76% 72.92% 72.89%Depreciation & Amortization Expense 3.08% 2.99% 2.69% 2.75% 3.00% 2.82% 2.68% 2.62%Gross Income 24.03% 23.60% 24.52% 24.73% 24.39% 24.43% 24.40% 24.50%

SG&A Expense 7.16% 6.84% 7.05% 6.04% 6.66% 6.55% 6.67% 6.71%EBIT (Operating Income) 16.87% 16.76% 17.47% 18.69% 17.74% 17.88% 17.74% 17.79%

Nonoperating Interest Income 0.07% 0.05% 0.09% 0.08% 0.08% 0.08% 0.08% 0.08%Equity in Earnings of Affiliates 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other Income (Expense) -0.18% -0.25% -0.17% -0.09% -0.18% -0.17% -0.16% -0.15%Interest Expense 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Unusual Expense - Net -0.01% -0.06% 0.00% 0.08% 0.00% 0.00% 0.00% 0.00%Pretax Income 16.75% 16.57% 17.38% 18.68% 17.64% 17.79% 17.66% 17.72%

Income Taxes 6.58% 6.44% 6.55% 7.44% 6.81% 6.87% 6.82% 6.84%Net Income 10.17% 10.13% 10.84% 11.24% 10.83% 10.92% 10.85% 10.88%

Chipotle Mexican GrillBalance Sheet

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019EAssetsCurrent assets:Cash & Short-Term Investments 17.31% 17.99% 18.45% 25.12% 131.02% 156.72% 195.90% 248.94%Short-Term Receivables 0.97% 0.86% 1.25% 1.01% 1.01% 1.01% 1.01% 1.01%Inventories 0.41% 0.41% 0.37% 0.39% 0.39% 0.39% 0.39% 0.39%Other Current Assets 1.33% 1.48% 1.31% 1.29% 1.29% 1.29% 1.29% 1.29%Total current assets 20.01% 20.73% 21.38% 27.81% 142.65% 168.75% 209.16% 264.00%

Gross Property and Equipment 48.02% 46.37% 41.88% 41.72% 41.87% 41.50% 41.46% 41.41%less: accumulated depreciation 16.29% 16.41% 14.94% 15.84% 17.04% 17.78% 18.50% 19.17%

Property and equipment, net 31.73% 29.96% 26.95% 25.88% 24.83% 23.72% 22.96% 22.23%Long Term Investments 8.26% 10.50% 12.56% 11.34% 10.35% 9.37% 8.58% 7.91%Intangible Assets 0.80% 0.68% 0.53% 0.47% 0.41% 0.36% 0.32% 0.29%Deferred Tax Assets 3.23% 3.24% 3.40% 3.12% 2.91% 2.68% 2.51% 2.35%Other Assets 0.28% 0.63% 0.56% 0.49% 0.43% 0.38% 0.34% 0.30%Total Assets 64.33% 65.75% 65.37% 69.11% 71.90% 74.23% 77.10% 80.19%

Liabilities and EquityCurrent Liabilities:ST Debt & Curr. Portion LT Debt 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Accounts Payable 2.15% 1.84% 1.69% 1.77% 1.77% 1.77% 1.77% 1.77%Income Tax Payable 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other Current Liabilities 4.69% 4.36% 4.29% 4.58% 4.58% 4.58% 4.58% 4.58%Total Current Liabilities 6.84% 6.20% 5.98% 6.34% 6.34% 6.34% 6.34% 6.34%

Long-Term Debt 0.12% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Liability for Post Employment Benefits 0.37% 0.42% 0.39% 0.36% 0.31% 0.27% 0.24% 0.21%Deferred Tax Liabilities 5.02% 4.97% 4.38% 4.03% 3.75% 3.46% 3.23% 3.04%Other Liabilities 6.35% 6.31% 5.64% 6.29% 6.29% 6.29% 6.29% 6.29%Total Liabilities 18.71% 17.89% 16.39% 17.03% 16.70% 16.37% 16.10% 15.88%

Equity:Common Stock Par/Carry Value 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.00%Additional Paid-In Capital/Capital Surplus 29.90% 28.61% 25.29% 23.27% 21.66% 19.98% 18.66% 17.54%Retained Earnings 34.76% 39.72% 41.92% 47.98% 53.37% 57.79% 62.27% 66.60%Cumulative Translation Adjustment/Unrealized For. Exch. Gain0.04% 0.05% -0.01% -0.01% -0.01% -0.01% -0.01% -0.01%Treasury Stock -19.09% -20.54% -18.23% -19.17% -19.83% -19.91% -19.93% -19.82%Total Equity 45.62% 47.85% 48.98% 52.08% 55.20% 57.86% 60.99% 64.31%Total Liabilities & Stockholders Equity 64.33% 65.75% 65.37% 69.11% 71.90% 74.23% 77.10% 80.19%

Chipotle Mexican GrillValue Driver Estimation(millions)Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019ENOPLATNet Sales 2,731 3,215 4,108 4,688 5,288 6,020 6,767 7,562Operating Expenses (2,186) (2,580) (3,280) (3,683) (4,191) (4,775) (5,385) (6,019)Depreciation & Amortization (84) (96) (110) (129) (159) (170) (181) (198)Implied Interest on Op Leases 76 88 95 107 119 133 144 156EBITA 537 627 813 983 1,057 1,209 1,345 1,501

Tax Provision 180 207 269 349 360 413 461 517Marginal Tax Rate 38.6% 38.6% 38.6% 38.6% 38.6% 38.6% 38.6% 38.6%Tax on nonoperating interest income 0.7 0.7 1.4 1.5 1.7 2.0 2.2 2.5Tax/Shield on Other Income (Expense) 1.9 3.1 2.7 1.7 3.6 4.1 4.1 4.5Tax/Shield on Unusual Expense - Net 0.1 0.0 0.1 (1.4) 0.0 0.0 0.0 0.0Tax Shield on Implied Lease Interest 29 34 37 41 46 51 56 60Total Adjusted Taxes 212 245 310 392 412 470 523 584

Δ In Deferred Tax Liability (15.43) 6.49 (14.91) 2.03 2.13 2.23 2.35 2.46

NOPLAT 310 389 488 593 648 740 823 919Invested CapitalCurrent Operating Assets

Normal Cash 137 161 205 234 264 301 338 378Short-Term Receivables 26 28 51 47 53 61 68 76Inventories 11 13 15 18 21 24 27 30Other Current Assets 36 47 54 60 68 77 87 97

Less Current Operating LiabilitiesAccounts Payable 59 59 70 83 93 106 119 133Income Tax Payable 0 0 0 0 0 0 0 0Other Current Liabilities 128 140 176 215 242 276 310 346Net Operating Working Capital 115 142 202 217 245 279 314 350

Net PPE 867 963 1,107 1,213 1,313 1,428 1,554 1,681

PV of Operating Leases 1,790 2,082 2,239 2,508 2,809 3,118 3,398 3,670Intangible Assets 22 22 22 22 22 22 22 22Other Assets 8 20 23 23 23 23 23 23Net Other Operating Assets 1,820 2,124 2,284 2,553 2,854 3,163 3,443 3,715

Liability for Post Employment Benefits 10 13 16 17 17 16 16 16Other Liabilities 174 203 232 295 333 379 426 476Net Other Operating Liabilities 184 216 248 312 349 395 442 491

Invested Capital 2,618 3,014 3,346 3,671 4,063 4,475 4,869 5,255

DriversNOPLAT 310 389 488 593 648 740 823 919Beginning Invested Capital 2,233 2,618 3,014 3,346 3,671 4,063 4,475 4,869Return on Invested Capital (ROIC) 13.86% 14.85% 16.19% 17.72% 17.64% 18.23% 18.40% 18.88%Change in Invested Capital 385 396 332 326 391 412 394 387Free Cash Flow (FCF) (75) (7) 156 267 256 329 429 533Economic Profit (EP) 174 230 306 391 426 495 553 625

Net Income 278 325 445 527 573 657 734 823Average Equity 1,145 1,392 1,775 2,227 2,680 3,201 3,805 4,495ROE (Net Income/Average Equity) 24.26% 23.38% 25.08% 23.66% 21.37% 20.54% 19.29% 18.30%

Chipotle Mexican GrillWeighted Average Cost of Capital (WACC) EstimationCost of Equity 6.49%Weight of Equity 89.04%Cost of Debt 2.52%Weight of Debt 10.96%WACC 6.05% Equity Weight

Market Cap (millions) 18,200

Pre-tax Cost of Debt 4.10% PV of Debt (000s) 0PV of Op Lease (000s) 2,239

Bloomberg WeeklyRisk Free Rate 3.09% Term BetaBeta 0.70 1 yrMarket Premium 4.85% 2 yrCost of Equity 6.49% 3 yr

4 yr5 yrAve 0.70

Cost of Debt

Cost Of Equity

Chipotle Mexican GrillDiscounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 3.50% CV ROIC 18.88% WACC 6.05% Cost of Equity 6.49%

Fiscal Years Ending Dec. 31 2015E 2016E 2017E 2018E 2019E

DCF Model 1 2 3 4 5NOPLAT 593 648 740 823 919Begin IC 3,346 3,671 4,063 4,475 4,869Ending IC 3,671 4,063 4,475 4,869 5,255Δ Invested Capital 326 391 412 394 387Free Cash Flow 267 256 329 429 533ROIC 17.72% 17.64% 18.23% 18.40% 18.88%

FCF 267 256 329 429 533Continuing Value 29,362PV of FCF 252 228 275 339 23,213

Value of Operating Assets 24,308+ Excess Cash 553- Total Debt 0-PV of Operating Leases 2,239-PV of ESOP 591Value of Equity 22,031Shares Outstanding 31.03Intrinsic Value (12/31/14) $710.06Price Today $750.53

EP ModelNOPLAT 593 648 740 823 919Beginning IC 3,346 3,671 4,063 4,475 4,869ROIC 17.72% 17.64% 18.23% 18.40% 18.88%Economic Profit 391 426 495 553 625Continuing Value 24,493

368 378 415 437 19,364

PV of EP 20,963Beginning IC 3,346Value of Operating Assets 24,308+ Excess Cash 553- Total Debt 0-PV of Operating Leases 2,239-PV of ESOP 591Value of Equity 22,031Shares Outstanding 31.03Intrinsic Value (12/31/14) $710.06Price Today $750.53

Present Value of EP discounted byWACC

Chipotle Mexican GrillDividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Dec. 31 2015E 2016E 2017E 2018E 2019E

EPS 16.88$ 18.24$ 20.80$ 23.05$ 25.66$

Key Assumptions CV growth 4.00% CV ROE 18.30% Cost of Equity 6.49%

Future Cash Flows P/E Multiple (CV Year) 31.45 EPS (CV Year) 25.66$ Future Stock Price $806.84 Dividends Per Share Future Cash Flows $0.00 $0.00 $0.00 $0.00 $0.00

Discounted Cash Flows $0.00 $0.00 $0.00 $0.00 $627.53

Intrinsic Value (12/31/14) $627.53Price Today 663.30$

Chipotle Mexican GrillRelative Valuation Models

EPS EPS Est. 5yrTicker Company Price 2015E 2016E P/E 15 P/E 16 EPS gr.TACO Del Taco $11.74 $0.46 $0.58 25.5 20.2 12.0PNRA Panera Bread Inc. $176.99 $6.12 $6.52 28.9 27.1 12.1YUM Yum Brands $71.12 $3.16 $3.58 22.5 19.9 9.5PBPB Potbelly Sandwich Works 11.99$ $0.27 $0.33 44.4 36.3 20.0SHAK Shake Shake $41.95 $0.32 $0.39 131.1 107.6 30.0

Average 32.9 27.9

CMG Chipotle Mexican Grill $609.00 $ 16.88 $ 18.24 36.1 33.4 8.7

Implied Value: Relative P/E (EPS15) $ 556.34 Relative P/E (EPS16) 509.10$

Chipotle Mexican GrillKey Management Ratios

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

Liquidity RatiosCash Ratio (Cash + ST)/Current L 2.53 2.90 3.09 3.96 4.77 5.52 6.26 7.00Current Ratio 2.93 3.34 3.58 4.38 5.19 5.94 6.68 7.42Operating Cash Flows/Current L 2.25 2.65 2.78 2.21 2.19 2.17 2.14 2.13

Activity or Asset-Management RatiosAsset Turnover Ratio (sales/ave assets) 1.68 1.66 1.71 1.58 1.50 1.46 1.40 1.34Receivables Turnover (sales/ave rec) 156.96 118.87 104.01 95.14 105.24 105.71 105.07 104.78Fixed Asset Turnover (Sales/ave PPE) 3.37 3.51 3.97 4.04 4.19 4.39 4.54 4.68

Financial Leverage RatiosDebt Ratio (total debt/total assets) - - - - - - - -Debt/Equity Ratio (total debt/total equity) - - - - - - - -

- - - - - - - -- - - - - - - -

Profitability RatiosEBIT Margin 16.87% 16.76% 17.47% 18.69% 17.74% 17.88% 17.74% 17.79%ROA (NI/Ave Assets) 17.11% 16.82% 18.55% 17.78% 16.27% 15.90% 15.15% 14.59%ROE (NI/Ave Equity) 24.26% 23.38% 25.08% 23.66% 21.37% 20.54% 19.29% 18.30%

Payout Policy RatiosPayout Ratio - - - - - - - -

Interest Coverage Ratio (operatingincome/interest expense)

750.53$ 0.65 0.7 0.75 0.8 0.85 750.53$ 240$ 250$ 260$ 270$ 280$2.50% 608.16$ 564.73$ 526.28$ 491.99$ 461.23$ 5,000$ 745.79$ 743.64$ 741.49$ 739.34$ 737.18$2.75% 650.00$ 600.62$ 557.31$ 519.00$ 484.88$ 5,100$ 748.83$ 746.67$ 744.52$ 742.37$ 740.22$3.00% 699.22$ 642.40$ 593.09$ 549.90$ 511.74$ 5,200$ 751.86$ 749.71$ 747.55$ 745.40$ 743.25$3.25% 757.96$ 691.64$ 634.81$ 585.57$ 542.49$ 5,300$ 754.89$ 752.74$ 750.58$ 748.43$ 746.28$3.50% 829.29$ 750.53$ 684.07$ 627.22$ 578.04$ 5,400$ 757.92$ 755.77$ 753.62$ 751.46$ 749.31$

750.53$ 4.0% 4.4% 4.8% 5.2% 5.6% 750.53$ 16% 17% 18% 19% 20%10% 739.84$ 731.76$ 723.82$ 716.03$ 708.38$ 2.75% 580.95$ 588.54$ 595.28$ 601.31$ 606.74$15% 812.51$ 798.31$ 784.54$ 771.18$ 758.21$ 3.00% 619.18$ 628.14$ 636.09$ 643.21$ 649.62$20% 898.64$ 876.20$ 854.73$ 834.16$ 814.45$ 3.25% 664.24$ 674.81$ 684.20$ 692.60$ 700.16$25% 1,002.35$ 968.56$ 936.76$ 906.76$ 878.42$ 3.50% 718.14$ 730.63$ 741.73$ 751.67$ 760.61$30% 1,129.63$ 1,079.86$ 1,033.90$ 991.34$ 951.82$ 3.75% 783.74$ 798.58$ 811.77$ 823.57$ 834.19$

2016 Capital Expenditures ($M)C

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