CMG

Holy Guacamole! McDonald’s Wishing It Had Kept Chipotle

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Very few investors probably remember that Chipotle (CMG) used to be owned in part by McDonald’s (MCD). McDonald’s had originally taken a stake in Chipotle in February 1998, when Chipotle had but 14 restaurants in Denver. The maker of the Big Mac would go on to own 90% of the subsidiary and eventually spin it off in an initial public offering in January 2006. McDonald’s would receive ~$1.5 billion from the sale, but with Chipotle’s market capitalization now at over $20 billion, it’s clear the burger-and-fries behemoth exited way too early. The most recently-reported results by both restaurants tell the diverging story quite well. McDonald’s reported relatively disappointing second-quarter results Tuesday. The performance can best be described as flat. Global … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Restaurant Industry Update

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The fast-food (quick-service) breakfast wars have intensified. It has become a high-stakes game for all participants, and most have gone all-in to capture market share, to use poker parlance. The NPD Group, a leading global information firm, noted that the pace of expansion for fast-food breakfast across the restaurant industry has been a key bright spot, and executives across the industry are taking note: Quick service, which accounts for about 80 percent of total restaurant morning meals, showed the strongest increase in breakfast visits of all restaurant segments with a 4 percent increase in the year ending December 2013 period compared to year ago, reports NPD CREST, which every day tracks how consumers use restaurants and other foodservice outlets. Morning … Read more

I’d rather lose half of my clients than lose half of my clients’ money.

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“I’d rather lose half of my clients than lose half of my clients’ money.” – Jean-Marie Eveillard (First Eagle Global) Josh Brown, who runs the blog The Reformed Broker, wrote an excellent piece today on how irrational clients and customers can bring down even the best of money managers. We think it’s a very informative read. Pasted below is an excerpt from the intro, accompanied by the list of the top 25 most overvalued stocks on the market today on the basis of our research. There is a link to continue reading the piece from Josh at the bottom of the table, too.  Something tells me there are some serious blow-ups on the horizon for professional managers. I feel this … Read more

Chipotle’s Fourth Quarter Was Impressive; Shares Still Expensive

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On January 30, Chipotle (CMG) registered arguably one of the best reports during fourth-quarter earnings season. The burrito maker grew revenue nearly 21% in the quarter, as comparable restaurant sales jumped more than 9% thanks to increased traffic, significantly better than the market’s expectations. Though Chipotle had previously announced that its fourth-quarter comp would be better than the 6.2% pace it registered in the third quarter, the performance exceeded expectations by a material margin. We saw similar strength at Starbucks (SBUX) with respect to the composition of its same-store sales growth in the period (mostly traffic expansion), and we think each firm benefited from strategically convenient locations as the industry battled one of the worst winters in the US on … Read more

McDonald’s US Comparable Sales Fall

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On Monday, McDonald’s (MCD) reported lackluster November comparable sales. European comparable sales (comps) were solid, up 1.9%, but comps in the APMEA (Asia/Pacific, Middle East and Africa) and US weighed on expansion, falling 2.3% and 0.8%, respectively. Performance in the APMEA was weighed down by weakness in Japan, while US comps suffered from heightened competitive activity and relatively flat industry demand trends that were only partially offset by strength in breakfast, chicken menu choices and expanded value offerings. Systemwide sales advanced 3.1% in constant currencies during the month. The news from McDonald’s is unique in that it runs counter to a report from the National Restaurant Association, released December 2, that the Restaurant Performance Index, RPI (1), hit a four-month … Read more

Evaluating 3Q Results at Panera and Chipotle

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High-flying restaurant peers, Panera (PNRA) and Chipotle (CMG), reported divergent performance in their respective third-quarter results. Though one is a bakery and the other a high-end burrito maker, their comparable growth trajectories make them relevant peers for discussion. Panera’s third-quarter report, released Tuesday, showed relatively strong top-line and bottom-line expansion of 8% and 17%, respectively, but the real issue was with the firm’s fourth-quarter outlook. For starters, the bakery-café cut its fourth-quarter comparable sales growth expectations for company-owned restaurants to the range of flat-to-up-2% versus 3-5% previously. Panera also cut its fourth-quarter earnings-per-share guidance to $1.91-$1.97 per share from $2.05-$2.11 previously on expected margin contraction of more than 100 basis points on a year-over-year basis. Though the new bottom-line outlook … Read more