Investment Club:

1

• Investment Club
• Stock recommendation Buy CMG
• November 27, 2007

2
Agenda

• Conclusions
• Industry highlights
• Stock recommendations
• Summary
• Appendices

3
Conclusions and recommendation

• Value prop, execution, and expansion drive
  earnings in restaurant industry
• Chipotle Mexican Grill (CMG) is an A operator
  with broadly appealing value proposition
• CMG will exceed earnings expectations via
  per-restaurant performance and expansion
• Valuation risk diminishes with long-term view
• CMG looks overvalued based on short-term metrics
• Long-term expansion potential justifies
  short-term valuation risk
• Consensus is overly short-termed focused
• The Street is not looking far-enough ahead at the
  expansion potential of CMG
• The Street is discounting operating leverage in
  CMG system
• BUY Chipotle Mexican Grill (CMG), current price
  126
• Price target 175-200
• Upside 40

4
Agenda

• Conclusions
• Industry highlights
• Stock recommendations
• Summary
• Appendices

5
Restaurants grow profits through per-store
performance and expansion

• Per-store performance
• Pricing power
• Increase in of transactions/visits
• Working capital management
• Quality, service

• Expansion
• Not too much, not too little for capex
• Adequate supporting infrastructure
• Managerial talent
• Inventory management

Investment implication in evaluating restaurant
chains, evaluate per-store performance and
expansion capability
6
Value prop and execution drive industry
profitability
Investment implication great restauranters do a
great job selling great food
7
Agenda

• Conclusions
• Industry highlights
• Stock recommendation
• Summary
• Appendices

8
CMG makes money through restaurant profits and
expansion

• CMG fulfills restaurant-dining niche as gourmet
  fast-casual
• Business model drives high-quality earnings
• Simple menu, few ingredients ? fast, efficient
  service and high throughput
• Organically-grown meats and fresh ingredients ?
  drives pricing power
• Fresh food and mostly-cash or credit transactions
  ? lowers working capital
• CMG will continue to make money by
• Increasing spread of revenue and costs per store
  (same-store sales up 12 YTD)
• Increasing the of stores (from 667 today to
  over 1,000 by 2010)

Healthy
Fast
Investment implication CMG business model drives
operating leverage
9
Competitive advantages outweigh risks
Investment implication CMG strengths outweigh
weaknesses
10
CMG looks overvalued on short-term metrics

• CMG is more richly valued than peers on a FY
  (08) PE, EV/EBITDA (ttm), and EV/restaurant
  outlet (ttm) basis
• Cash metrics also reveal disparity since CMG is
  spending heavily to grow

Investment implication Must focus on long-term
potential to uncover value
11
but must forecast long-term performance to
better gauge valuation
Conservative pricing, volume increases, and store
growth assumptions for 2008-2012
Investment implication Conservative assumptions
of the future produce attractive investment
returns
12
Price targets show 40 upside
Valuation summary
Investment implication Degree of upside provides
margin of safety
13
Consensus myopia provides opportunity

• 2 major points of difference with consensus
• Longevity of forecast I see CMG as the next
  great chain
• Pace of store expansion and operating leverage in
  model

Investment implication Consensus myopia gives us
opportunity with CMG
14
Conclusions and recommendation

• Value prop, execution, and expansion drive
  earnings in restaurant industry
• Chipotle Mexican Grill (CMG) is an A operator
  with broadly appealing value proposition
• CMG will exceed earnings expectations via
  per-restaurant performance and expansion
• Valuation risk diminishes with long-term view
• Consensus is overly short-termed focused
• BUY Chipotle Mexican Grill (CMG), current price
  126
• Price target 175-200
• Upside 40

15
Agenda

• Conclusions
• Industry highlights
• Stock recommendations
• Summary
• Appendices

16
Appendix I Revenue forecast
?conservative pricing, volume increases, and
store growth assumptions for 2008-2012
17
Appendix II PE-based valuation
PE-based valuation 189
18
Appendix III EV/EBITDA valuation
EV/EBITDA-based valuation 159
19
Appendix IV DCF valuation
20
Appendix V Comp tables (operating performance)
21
Appendix VI CMG table (operating performance)

• Rising gross margins ? pricing power
• Rising operating margins ? operating leverage
• Best-in-class cash conversion cycle ?
  self-financed growth
• Rising fixed asset turnover ? efficient expansion
  and growth
• Increasing returns on capital ? CMG is creating
  shareholder value

22
Appendix VII CMG stock chart
23
Appendix VIII US restaurant market is large and
growing
2005 Market size 181B
All major categories show growth
24
Appendix IX Americans are spending more eating
out
Two strong trends support CMG 1) rise in
disposable income 2) spend on
restaurants