|New Threads Only:|
|New Threads & Replies:|
Forum List » Guru News and Commentaries|
Guru News, Stock picks and commentaries
David Einhorn Comments on Chipotle Mexican Grill
Posted by: Holly LaFon (IP Logged)
Date: October 24, 2012 02:56PM
At the recent Value Investing Congress, David updated our view of Green Mountain Coffee Roasters (GMCR), elaborated on our General Motors (GM) and Cigna (CI) theses, and disclosed our short position in Chipotle Mexican Grill (CMG).
In presenting our short thesis on CMG (CMG), we noted that the stock trades at a premium multiple but faces significant headwinds including rising food costs, higher healthcare costs related to Obamacare, and competition from a resurgent Taco Bell. We conducted a consumer survey that provided evidence that Taco Bell's new Cantina Bell menu, priced at a substantial discount to CMG's average menu item, will draw customers away from CMG.
The protests from CMG's bullish supporters can be summarized as:
¡No Quiero Taco Bell!
Have you ever actually tried the food!?!
Have you seen the lines at CMG?
CMG and its bullish supporters insist that CMG has a completely different customer base than Taco Bell. However, our survey results show otherwise. We believe Taco Bell will pluck away some percentage of CMG's customers, which will cause CMG's same store sales to deteriorate. Given CMG's high valuation, we don't believe the market will be forgiving.
We surveyed 1,608 CMG customers. Of those, 25% never go to Taco Bell, and their median income (about $59,300) skews higher than the average CMG customer. Of the remaining 75%, almost one-third of them had ordered from the Cantina Bell menu within the first 50 days of launch. The preliminary results aren't favorable for CMG: Half preferred CMG, but the other half either preferred Cantina Bell or rated them equally. The latter group tends to be younger (median age: 26) and less well-to-do (median income: $36,600).
More importantly, we found that CMG's highest frequency customer—those who go a couple times a week or more—are much more likely to have tried Cantina Bell, more likely to prefer Cantina Bell to CMG, more likely to return to Taco Bell more often as a result of the Cantina Bell menu introduction, and twice as likely to cut down on trips to CMG as compared to the average CMG customer.
Our survey found that more than a third of CMG's customers are 18-24 years old (we didn't survey people younger than 18) and more than two-fifths of CMG's customers earn less than $40,000 per year. On the margin, this group is likely to show up at CMG a bit less often. The Partnerships closed out their CareFusion (CFN) position during the quarter. The company failed to achieve the earnings we hoped it could generate. Even so, the investment compounded at a double-digit rate over our three years of ownership. We wish all our "unsuccessful" investments did so well.
From Greenlight Capital's third quarter letter.
Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.