Will Panera (PNRA) End Up Like Chipotle (CMG)?

Panera Bread Co. (NASDAQ:PNRA) was up almost 7% today on 3Q earnings that were 4% above estimates and 27% above the same quarter last year, being driven by strong same store sales that were up 6.2% for company owned stores. On the other hand, Chipotle Mexican Grill, Inc. (NYSE:CMG) had the opposite success in its latest earnings announcement. The company saw a jump in profits, but missed estimates and noted that competition was pressuring comp sales, which came in the lowest in several years.

Both Panera and Chipotle saw their stock go gangbusters for the three years ended 2Q 2012, outpacing other fast food restaurants by offering fresh food and higher quality ingredients. Each company was up over 200% over this time, while the S&P 500 was relatively flat. However, since the end of 2Q things have gone very wrong for Chipotle. The company is now down over 15% during 3Q, while Panera is up over 20%.

David Shaw

Chipotle is in a battle with the other burrito chain Qdoba, as well as trying to hedge the consumer trade down to Yum! Brands, Inc. (NYSE:YUM)‘s Taco Bell. Billionaire David Einhorn recently posted a short recommendation against Chipotle, citing that Taco Bell would soon begin to take share from the company; it appears he is correct. Taco Bell introduced its higher quality, yet value oriented, Cantina Bell menu, which has been only more bad news for Chipotle. Taco Bell parent, Yum, posted 3Q results of $0.99 versus the same period last year of $0.83. Even with weaker growth in China, the company has posted same store sales up 6%.

Starbucks Corporation (NASDAQ:SBUX) should see revenues up 12% in 2013, on the back of a 14% increase in 2012. The company has seen a number of competitors attempt to infringe on its market. After Panera’s entry into the breakfast market, the company expanded its suite of breakfast items and expects same store sales to be up 6% in the Americas and 11% in China. The company is even entering the at-home segment by offering its own single-cup machine, competing head to head with Green Mountain; see if Starbucks might buy Green Mountain.

In most cases, the fast-food giant that all companies compete with is McDonald’s Corporation (NYSE:MCD). The company recently introduced new menu items that should broaden its customer base. These items include new coffee and frappe items that will allow the company to further compete with Starbucks and Panera in the breakfast market. McDonald’s continues to be a strong company, paying a 3.5% dividend and expects to grow next year’s EPS at 10%; find out if McDonald’s is a good investment.

We see McDonald’s as a company worth taking a look at, but also like Panera. Panera guided 4Q earnings estimates upwards, increasing 4Q EPS expectations to $1.72 – $1.74 per share, compared to previous consensus estimates of $1.69. Chipotle on the other hand saw a recent downgrade from Wedbush, citing the fact that increased marketing will likely no longer be able to drive same store sales growth as much as in the past, whereas Panera offered strong comp guidance between 4.5% and 5.5%, above prior consensus of 4.0%.

Even with Chipotle’s recent decline, the company trades at 28x earnings compared to Panera 31x. We are comfortable with Panera’s premium given the company’s strong growth prospects, but still question Chipotle’s valuation. Notable funds were also comfortable with Panera’s valuation as many were loading up on shares during 2Q. This includes AQR Capital, increasing their 1Q stake by 45%, D.E. Shaw with an increase of almost 5000%, and Israel Englander, who upped his stake 50%. Billionaire investor Jim Simons was the top fund owner by shares in both Chipotle and Panera. During 2Q, Simons upped his stake by over 50% in Chipotle, but for Panera, Simons decreased his position 4% in 2Q, on top of a 26% decrease in 1Q. For a complete look at the hedge fund activity surrounding this stocks, continue reading here.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!