Chipotle Mexican Grill (CMG)

I love this growth story and their food. As of the end of 2009, CMG operated 900 restaurants with more than 90% of them in the US. A few highlights from the last quarter:

- 3Q09 revenue rose 14% y/y to $387.6 million and same-store sales grew 2.7% driven mostly by 6% increase in menu prices. This contrasts with declines at other casual dining chains. Earnings grew 83% to $1.08 in 3Q09 from $0.59 in 3Q08.

- Management reiterated its goal to ultimately open 3000 restaurants in the US and worldwide with expansions in London, Toronto, Germany and France already under way. The company also expects to introduce lower-priced kids menu, soups and salads to boost revenue going forward.

CMG has consistently performed at 25% growth easily surpassing the industry average of 13%. Currently, CMG shares trade at 21.5x FY2010 earnings estimate vs. industry average of 22. Given its growth rate and PE relative to industry, I believe CMG is trading at a very reasonable valuation.

On Jan 8, 2010, Morgan Stanley upgraded the stock to "Overweight." Here is the link: http://finance.yahoo.com/news/Chipotle-shares-jump-on-apf-2628739333.html?x=0&.v=1

Three days later, on Jan 11, 2010, Deutsche Bank upgraded the stock to "Buy." Here is the link: http://www.marketwatch.com/story/chipotle-panera-ruths-upped-by-deutsche-bank-2010-01-11?siteid=yhoof2

Then three days later, on Jan 14, 2010, Wells Fargo upgraded the stock to "Market Perform." Here is the link: http://finance.yahoo.com/q/ud?s=CMG

Given all these upgrades, the stock is on the cusp of breaking out. A break above $100 on above average volume could take it quickly to $120 which is prior resistance going back to early 2008. MACD, Stochastic and RSI are also slightly turning to the upside. Attached here is a long-term chart.

I like to play it to the long side with the following calendar spread:

- Buy to open Jun $110 strike call

- Sell to open Feb $110 strike call

The trade can be done for a net debit of $3.05 based on Friday's closing prices. The long open is far out in June so it gives us several more months to roll short options in case it doesn't pan out in Feb. The hypothetical P&L chart is also attached.

Good luck!