Equity Research

Research Reports

Each month, the William Blair & Company Equity Research Department spotlights a new research report. These reports are made available to the public, for a limited time, on our Web site. You can register to receive these reports from the Business News section of the company home page, or from here. Please see below for the reports that are currently available:
 

Research Report Available Online: Chipotle Mexican Grill, Inc.

September 23, 2008 - William Blair & Company recently initiated research coverage of Chipotle with a Market Perform rating. Chipotle Mexican Grill has emerged as one of the country’s fastest-growing restaurant concepts, owning and operating nearly 800 locations across 33 states and one location in Canada. Chipotle offers a focused menu of Mexican favorites (burritos, tacos, and salads) using high-quality, fresh ingredients. Below are highlights of analyst Sharon Zackfia’s Basic Report.

Focused menu yields high consumer appeal and strong restaurant-level margins. With a focused menu of tacos, burritos, salads, and burrito bols (sans tortilla) yielding virtually limitless ingredient combination options, Chipotle has emerged as a fast-casual restaurant force, combining wide consumer appeal with extremely efficient restaurant operations. As a result, Chipotle generates enviable sales productivity as well as best-in-class restaurant-level margins.

Excellent unit economics with healthy expansion prospects. Chipotle’s strong sales and streamlined operations offset higher-than-average food costs (stemming primarily from higher-cost naturally raised meats), yielding strong 40%-plus cash-on-cash returns at maturity and pretax unit-level return on invested capital (ROIC) of over 25%. Moreover, from nearly 800 locations today, Chipotle’s long-term expansion prospects appear robust, with our saturation analysis suggesting the potential to more than double the restaurant base if the company can achieve just half the penetration it has already attained in its home state of Colorado.

Expect 20% to 25% EPS growth annually over next three to five years. We expect high-teens unit expansion, midsingle-digit comps, and leverage on corporate overhead will more than offset modest restaurant-level margin degradation, yielding 20% to 25% EPS growth over the next three to five years.

Slowing comps and risk to 2009 estimates limit our enthusiasm. After 10 years of double-digit same-store sales gains, Chipotle’s comp trends recently slowed to 7.1% in the second quarter, and we project continued midsingle-digit comps throughout the remainder of 2008, which may pressure Chipotle’s stock multiple. In addition, Chipotle’s restaurant-level margin contracted in the second quarter, in part due to escalating commodity costs. While we are optimistic the company enjoys sufficient pricing power to protect margins, management has not detailed any specific plans to raise prices in the near future. The absence of further price increases to buffer margins would likely put 2009 estimates at risk.

To read more about Chipotle, register to receive a complimentary copy of the report in its entirety: register for report.

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Research Report Available Online: FTI Consulting, Inc.

July 28, 2008 - William Blair & Company recently initiated research coverage of FTI Consulting, Inc. FTI Consulting provides restructuring, corporate finance consulting, litigation and forensic consulting, economic consulting, strategic and financial communications consulting, and technology consulting services. Below are analyst Timothy McHugh’s report highlights.

Favorable secular trends and international expansion should drive solid growth. Demand for corporate restructuring services is increasing and will likely continue to do so during the next few years. The burgeoning electronic discovery market is also projected to grow quickly during the next few years. Lastly, the level of litigation and regulatory activity continues to grow steadily, particularly as it relates to issues in the credit markets. FTI Consulting is one of the leading service providers in each of these end-markets, so we expect demand for the company’s services to remain strong. We also believe the company has a significant opportunity to expand its services outside the United States during the next few years.

FTI Consulting is led by an experienced and deep management team. Executive Chairman Dennis Shaughnessy and President and Chief Executive Officer Jack Dunn have led the company since 1992 and are supported by a deep management team with significant industry experience. Management has proved adept at driving both organic and acquired growth during the past few years. The company recently raised additional capital through a secondary stock offering, so we believe that FTI Consulting will remain acquisitive.

FTI Consulting is well diversified, but its acquisitive history increases the company’s risk profile. Management has gradually diversified the business and signed its key consultants to long-term retention agreements, but the company’s own history demonstrates the risk of acquisitions.

To read more about FTI Consulting, Inc., register to receive a complimentary copy of the report in its entirety: register for report.

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