MCD

Chipotle Fourth Quarter Comps Suffer Greatly; Could Qdoba Be the One to Eat Chipotle’s Lunch?

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Chipotle’s (CMG) operating performance has come under tremendous pressure in recent months due to a number of reports linking illness in customers to its restaurants. At first, we thought the situation would be relatively contained to just a few dozen instances of sickened customers, but more concerns have come to light since we last commented on the topic. The media is having a field day. Can a company that prides itself on “Food with Integrity” endure, and why so many different causes of illness, from E. coli to salmonella to the norovirus? Could these events mark the beginning of the end of the burrito-making giant’s growth prospects, or is the bad press just a hiccup of indigestion, soon to be … Read more

Getting Excited About Potentially Adding Chipotle

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Sometimes some of the best franchises never really go on sale, so when they get hit with an exogenous, temporary shock such as what is currently happening with Chipotle (CMG), we pay very close attention. In our view, the market is over-reacting to transient E. coli scares that are helping to mark down the company’s equity to more palatable prices for interested “new money.” Chipotle’s shares still aren’t terribly cheap on the basis of our discounted cash-flow process, but we simply can’t ignore the price fall, which has sent the burrito-making giant’s shares under $500, breaching through our fair value estimate to the downside – remember, the Valuentum process first requires a firm’s equity to bottom, form a base and … Read more

5 Reasons to Consider Not Owning McDonald’s

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1. Difficult Comps to Come in Late 2016/Early 2017 McDonald’s (MCD) has come roaring back to life. The company reported strong third-quarter performance October 22 and posted an impressive 4% global comparable sales growth rate in the period. We thought the fundamental performance was great, even though consolidated revenue and consolidated operating income dropped 5% and 2% in the quarter on a reported basis, respectively. On a year-over-year basis, constant-currency performance showed 7% top-line growth and 10% operating-income growth, both of which we thought were solid. That said, the market seems to be accepting the report as evidence that McDonald’s is permanently back on track, but we’re striking a more cautious tone. We think the quarterly results and a few … Read more

Restaurants: Pulling Out All the Stops?

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Yum! Brands’ (YUM) second annual earnings-per-share guidance revision for 2015 in a matter of a couple weeks–as late in the year as the month of October–must be a new record for an executive suite. Credibility now shot, management is pulling out all the stops and going full-steam ahead with separating its China operations from the rest of its business. Yum! Brands is simply shell-shocked, in our view, and is acquiescing to activist investor demands that may not be beneficial to the interest of long-term shareholders. We think the move by the executive suite is being pursued solely to preserve their jobs.   Though some estimates suggest that a separation of Yum! Brands’ China Division from the rest of its operations … Read more

Yum! Brands Blows Up

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The share price chart of Yum! Brands is shown above. The writing was on the wall. We warned about the impending collapse in Yum! Brands’ (YUM) shares in our highly-selective July 14 note, “Warning! 5 Heavily-Followed Dividend-Paying Stocks to Avoid:” “The owner of KFC, Pizza Hut and Taco Bell has a solid franchise, but its share price has rocketed too far too fast, perhaps on renewed speculation that it will spin off its Yum! China division into a separate entity, which may never happen. But while speculation fuels the share price advance, there are a few things we do know for certain. The fast-food environment in the US is cutthroat, and the trend toward fast-casual is a long-term secular dynamic, … Read more

Unemployment Rate Falls to 5.1%! Great Times in America!

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Image Source: BLS The future is all that matters. This is a basic tenet of the stock market, where prices of equities are forward-looking discounting mechanisms. August is now over, and we learned that the job market in the United States is close to the healthiest it has been in a long time—that is, if you buy into the data calculations behind the national unemployment rate, which now stands at a 5.1%. The mark is the lowest level since the Great Recession of late last decade and is now roughly half the levels experienced at the “height” of the Great Recession, which drove 10% of Americans that were willing to work out of a job. The Fed has worked a … Read more

Fast Casual Burger Growth Sizzling!

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The burger market within the restaurant industry is the largest dine-out segment in the US with more than $70 billion in yearly sales. It is estimated to be twice the size of the next largest category, the pizza market, and has proven to be successful around the globe as well, with an estimated global market size of more than $135 billion. We expect overall “burger demand” to continue to increase at a GDP-like pace and generally ebb and flow with the broader economic cycle, as consumers trade-up in good times and trade-down in troubled times. Concept proliferation by new entrants may offer an incremental tailwind to the overall market size, while lower prices at the gas pump have already offered … Read more

Assessing the Fallout from the Collapse in China’s Stock Market…Thus Far

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No longer do we live in an isolated world. If you weren’t convinced of this before the Global Financial Crisis, the credit crunch of late last decade should have changed that. Just as the interconnectedness of global financial markets is undeniable, we think the significance of the health of the Chinese economy is as critically important to the trajectory of equity prices across the globe. That’s why we’re not taking the recent collapse in the Chinese stock market lightly. Here’s what we’re hearing. China’s major restaurant bellwether, Yum! Brands (YUM), owner of KFC, addressed whether a decline in the country’s equity market has impacted sales. Though the company noted that “a very small percentage of customers have been impacted,” we’re … Read more

3 Reasons Why Buffalo Wild Wings Is a Long-Term Winner

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#1: Buffalo Wild Wings Has Captured the Hearts of Children “Plant the Brownie acorn and the Kodak oak will grow.” George Eastman knew all too well about winning the hearts of children. The inventor-entrepreneur popularized flexible film in the 1880s, and his first Kodak camera was available for purchase by the end of the decade. But the breakthrough was too expensive, and it wasn’t until the Kodak Brownie, released a dozen years later, that photography was democratized. The camera sold for just a $1 and was easy to use. But importantly, Eastman focused his marketing and advertising efforts on children. When these children grew up, the seeds had been planted, and Eastman had built an empire. The Kodak oak grew. … Read more

Warning! 5 Heavily-Followed Dividend-Paying Stocks to Avoid

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Zoetis (ZTS) The share price of Zoetis, the leader in the production and commercialization of animal health medicines and vaccines, is trading at a substantial premium to its standalone intrinsic value as a result of speculative optimism that a takeout of its shares might happen. Activist Bill Ackman’s near-10% stake in the 2013 spin-off of Pfizer (PFE) has investors believing a deal may be in the works, but there’s no real evidence of one. In fact, it appears investors are desperate to see something (anything?) happen: on June 25, for example, Zoetis leapt more than 10% immediately on unfounded rumors that Valeant Pharma (VRX) was putting together a bid. We don’t think a buyout of Zoetis is going to happen … Read more