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  • Lowest Trade Since 2009 [View article]
    Very well thought article. Thank you for your analysis!
    Mar 13 02:48 PM | Likes Like |Link to Comment
  • The Spring Correction Is Upon Us [View article]
    Well written article. Thanks for sharing!!
    May 2 09:13 AM | 3 Likes Like |Link to Comment
  • Don't Panic: Consider These 2 Stocks After HP's And Dell's Earnings Bomb [View article]
    Nice article. STX is a strong buy right now, specially at these levels. The only thing that worries me is sector rotation, usually when this techs get this cheap is because earnings are expected to decrease rapidly in the near future, any thoughts?

    I'm waiting for INTC to get to the $21-22 level to pull the trigger, you are absolutly right on your analysis of INTC.
    Sep 8 05:44 PM | 1 Like Like |Link to Comment
  • Dollar General CEO Discusses Q2 2012 Results - Earnings Call Transcript [View article]
    Same, I own DG and was amazed on how it underperformed the market on an up day like Thursday. Usually DG does better when the economy is Ok, not on such a bull market so investors might expect DG to underperform if we the economy improves so much as they might switch to other retailers, just my thoughts. Also, the technicals are bearish right now, probably some profit taking by institutions.
    Sep 8 05:18 PM | Likes Like |Link to Comment
  • 4 Undervalued Dividend Stocks Keeping Debt To A Minimum [View article]
    Xinyuan looks so cheap right now.
    They have 72.93M shares outstanding and they have 719M in Equity as of last quarter, no debt, wouldn't you be getting almost 10$ in equity for less than $3?
    Of course we need to look at some possible accounting issues, but they are registered in the NYSE and Earnst & Young audits them. Even in a bad case scenario it is still dirt cheap.
    Sep 4 07:12 PM | 1 Like Like |Link to Comment
  • Chipotle's Over $400 - A Free Cash Flow Analysis [View instapost]
    Thanks for your question bakerjoa.

    I used FCFF / 1 + r ^ n

    Example: PV of FCFF in 2012 = 314,483 / 1.0982 = 286,352 (not exact due to rounding)

    The correct way would be to use WACC instead of r, but Chipotle's WACC apparently is around 6-7% (, so I decied to use a higher rate, in these case, required return.
    May 9 09:57 PM | Likes Like |Link to Comment
  • Gold: The Fate That Awaits Once Fed Stimulus Ends [View article]
    Great article Eric! You gave your opinion, but remained very objective and insightful.

    The great thing about gold is that when governments do bad, gold does great (in the last 2 decades, when has the government really done well?). When stock market crashes, gold rises, and when everything goes well, gold still goes up!

    Apr 27 12:14 AM | 2 Likes Like |Link to Comment
  • Chipotle At $400: A Free Cash Flow Analysis [View article]
    They are growing fast, but I don't think they will almost double the number of restaurants to 2300 in the next five years. As of March 31 they had 1,262 and opened 32 in the quarter and expect to open around 160 new restaurants in 2012. At that pace they can make it to 2,000 in the next five years probably.

    Doubling the number of stores is not the only way they can achieve that growth. There are many ways to improve operational efficiency on the current restaurants to improve margins and achieve more profitability. Last quarter net income increased 35.1%, and they didn't open 35% more stores in a year, and restaurant level operating margin increased 220 basis points.

    My 20% growth rate in the next five years might be a little high, but not that far from reality I think. This company has the potential and the management to keep achieving great results.
    Apr 26 11:36 PM | Likes Like |Link to Comment
  • Chipotle At $400: A Free Cash Flow Analysis [View article]
    Thanks for your comment.

    Technically it IS forever, but when you discount values that are, let's say 20 years away they influence almost nothing compared to the cash flows that are 5 or 7 years in the future.

    The other way the analysis could be made is discounting it at X for a couple of years only, but that would mean that the company stops existing at that moment. I think it's better and more realistic to use a terminal value.
    Apr 26 11:21 PM | Likes Like |Link to Comment
  • Chipotle At $400: A Free Cash Flow Analysis [View article]
    Thanks for your comment Vigilant Investor.

    Forecasting a recession can be even harder than forecasting the growth of a burrito chain. Economist can't even decide if we are in a recession right now!

    If we knew when we will get into a recession, the next question would be, how will we quantify it? That's why basic models like FCF don't include variables to quantify recessions, the best thing you could do is adjust the discount rate or the cash flows, but that would just add subjectivity to the analysis.
    Apr 26 11:11 PM | Likes Like |Link to Comment
  • Chipotle At $400: A Free Cash Flow Analysis [View article]
    Please read the article and understand it first before saying things like "Give me a break if you are going to do an analysis at least understand the methodology you are using"
    Apr 26 11:06 PM | Likes Like |Link to Comment
  • Chipotle At $400: A Free Cash Flow Analysis [View article]
    Are you sure you can actually buy a Chipotle store, or franchise? I think the company owns them all or almost all of them. For what I've read they don't operate like a regular fast-food chain store selling franchises to investors.
    Apr 26 10:59 PM | Likes Like |Link to Comment
  • Chipotle At $400: A Free Cash Flow Analysis [View article]
    Thanks for your comment.

    You are right. That's exactly why I discounted the FCFF on the Cash Flows table (PV of FCF). I used the required rate of return of 9.82% estimated with CAPM. Using 7.5% would give a much higher value for each share.
    Apr 26 10:50 PM | Likes Like |Link to Comment
  • Chipotle At $400: A Free Cash Flow Analysis [View article]
    Thank you for your comment tew.

    The growth rate I used is an aggressive one. Why? Because I think this company is still in it's growth phase. They have been around for almost 20 years, but in the last 3 to 5 years is when they have really expanded. They have more than 1,000 stores in the US, but zero in China. McDonald first opened a store in China in 1990 and now they have more than 1,000. Comparing Chipotle to McDonald may sound like comparing a small tech. company to Apple, but they are really posting strong earnings and revenues.

    To compensate for the high short term growth rate, I used a small (5%) growth rate for the long term to calculate the terminal value. I was tempted to use a three stage model, but decided to keep it simple and a little more conservative.

    The correct way to calculate the number of shares is like you said, diluting outstanding shares. The difference is 150,00 (from 31.7m to 31.85m), but thanks for noticing that, I really forgot it.

    How much will they spend in maintenance and remodeling will be hard to estimate. My best guess is that they will have to invest more on maintenance and less in expansion or both. In that case their earnings and cash flow will suffer in the short term, but then they will have the potential to grow their revenues even more.
    Apr 26 05:28 AM | Likes Like |Link to Comment
  • Chipotle At $400: A Free Cash Flow Analysis [View article]
    Thank you for your comment. Your right. It's very hard to estimate long term growth rates. For that reason I decided to use the high growth rate for the short term and a very low rate for long term. The analysis that I did here was very simple. I didn't adjust any financial data, didn't use a multi-factor model for estimating required rate of return, but I think this simple model explains why Chipotle is valued at $400+, because they have the cash flow to support their expansions, pay their debts and reinvest.

    Predicting the growth rate for a burrito chain up to 2016 is I think impossible, the best thing you can do is a top down analysis and arrive at your conclusions. I was checking The Street stock analysis for Chipotle, and in their peer group analysis they have the highest revenue growth in their peer class (including PNRA, MCD, and others). Is that sustainable? I really don't know.
    Apr 26 05:27 AM | Likes Like |Link to Comment