This post is part of my series featuring established companies and the smaller, more aggressive or innovative rivals that may eventually succeed them.
The most impressive game-changer story in the fast food industry over the past 50 years is indisputably McDonald's (NYSE: MCD). Founder Ray Kroc was a visionary and pioneer in serving customers hot fast food at a reasonable price. Thirty thousand units later, McDonald's is still a growth story. But the better growth story is Chipotle Mexican Grill (NYSE: CMG), so much so, in fact, that McDonald's was an early investor in Chipotle! (McDonald's no longer owns shares of Chipotle.)
McDonald's went through some execution issues in the mid-1990s through 2003. The fast food industry was taking some hits from nutritionists, and the quality of food was suspect. McDonald's re-tooled its entire operation from store front to menu offerings. The standard hamburgers and those delicious french fries are still on the menu, but McDonald's has added a variety of salads, wraps and other healthier options. In the past five years the stock has nearly tripled in value, validating McDonald's make-over.
Chipotle, founded in 1993, has not had to re-tool or redefine itself. The freshest of ingredients, naturally raised poultry and beef are highlights of the limited, but superb menu. Chipotle is a favorite of almost every demographic group, from teenagers to the elderly. Chipotle has succeeded in offering the finest fresh Mexican food, but not at the cheapest price. The average ticket at Chipotle comes in near $9. The company recently raised prices at different levels depending on geography. Sales have not slowed a bit in spite of the price increases.
Three types of raw tomatoes -- red plum, red Roma and round red tomatoes -- grown in 17 states are voluntarily being pulled of the shelves and menus of McDonald's (NYSE: MCD), Wal-Mart (NYSE: WMT), Burger King (NYSE: BKC), Kroger (NYSE: KR), Outback Steakhouse, Winn-Dixie (NYSE: WINN) and Taco Bell, among others. In fact, "McDonald's has stopped serving sliced tomatoes on its sandwiches as a precaution, but will continue serving grape tomatoes in its salads because no problems have been linked to that variety."
Similarly, Burger King, Yum Brands Inc. (NYSE: YUM) restaurants, Darden Restaurants (NYSE: DRI), and Chipotle Mexican Grill Inc. (NYSE: CMG) have also removed the contaminated brands from their menus across the U.S., and some, like Burger King, in Canada, Puerto Rico and some other Caribbean islands as well. Many left the non-contaminated brands on the menu.
MOST NOTEWORTHY: Ascent Solar, Xcorporeal and Chipotle Mexican Grill were today's noteworthy initiations.
Cowen said Ascent Solar Technologies Inc.'s (NASDAQ: ASTI) unique thin-film solar technology is well suited for integrated applications. Shares were started with an Outperform rating.
Roth Capital believes Xcorporeal Inc (AMEX: XCR) is targeting a large, unmet market, as the firm notes that 500K patients are expected to receive kidney therapy over the next few years. Roth, which initiated shares without a rating, anticipates that the company will obtain regulatory approval for the home therapy and critical care markets during the next few quarters, possibly creating a catalyst for the stock to appreciate.
JP Morgan initiated the Class B shares of Chipotle Mexican Grill Inc (NYSE: CMG.B) with an Overweight rating as they believe the recent pullback provides a compelling entry point.
OTHER INITIATIONS:
Lehman initiated NCR Corporation (NYSE: NCR) with an Overweight rating and $30 target.
Next week is sure to be filled with fun and volatile market conditions. The highlight will be the Fed decision on key rates, due on Wednesday, April 30, following a two-day meeting. Anytime the Fed has the floor, the markets listen. Tuesday and Wednesday will be filled with speculation up until the time of the announcement of a cut or pause.
There are many possible outcomes for this meeting, as we have seen a substantial change in investor sentiment regarding the potential need for further rate cuts. The buzz on the street is for a cut of 25 basis points and then a wait-and-see attitude from there. I think that is the most likely direction.
There has been a great deal of concern that all the recent rate cuts have not provided the benefit to consumers the economy needs. Clearly, there is a fatty clog within our financial circulatory system. Traditionally, the Fed likes to see how its actions trickle into the economy before it continues too far down one path, which would argue for a pause now. Plus, the Fed does not want to run out of ammunition by cutting rates too far too fast. But there is no question that we are dealing with a more aggressive Fed than we have seen in decades, so I think we will see another small rate cut.
Chipotle (NYSE:CMG) is recently up $1.90 to $116.90. CMG is scheduled to report Q1 EPS on April 23. Morgan Joseph says "Q108 should mark the first quarter of growth deceleration for CMG. While we believe CMG remains one of the best operators in the industry, we also believe that like its comps, it will eventually fall victim to the recessionary consumer environment." CMG May call option implied volatility is at 55, puts are at 65; above its 26-week average of 48, according to Track Data, suggesting larger price risk. CMG puts are priced higher than calls because CMG is difficult to borrow.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Recently, I had the opportunity to speak with Robert Reich about some of the problems facing our economy and humanity. Those are two very big topics that could easily fill days of talk-time and we managed to scratch through it in 20 minutes or so.
Professor Reich is a wise gent who brings us closer to understanding what is needed in an ailing economy that has seen its share of economic disasters. What is needed is a good old belt tightening, it seems, and significant change in the mindset of Americans. It seems that since China and India are consuming everything in sight, it is up to us to make sue that there is going to be enough food and drink for our future generations.
Darden Restaurants (NYSE: DRI) operates about 1,700 casual dining restaurants in the United States and Canada. Its Red Lobster (seafood), Olive Garden (Italian cuisine), LongHorn Steakhouse (steak), Bahama Breeze (Caribbean items) and Capital Grille (steak) chains cater to families, with mid-priced menu items and generally suburban locations. A small group of Seasons 52 restaurants feature a casual grill and wine bar concept. Brinker International (NYSE: EAT) and Chipotle Mexican Grill (NYSE: CMG) are competitors.
The company pleased investors last week, when it reported fiscal Q3 EPS of 85 cents and revenues of $1.81 billion. Analysts had been looking for 82 cents and $1.80 billion. Management also guided FY08 EPS to about $2.71-$2.76 ($2.72 consensus) and FY08 revenues to about $6.63-$6.68 billion ($6.64B consensus). Raymond James subsequently upgraded the shares to "strong buy".
MOST NOTEWORTHY: Chipotle Mexican Grill, Micrus Endovascular and Acorda Therapeutics were today's noteworthy initiations:
Jefferies expects the quality gap between Chipotle Mexican Grill (NYSE: CMG) and its peers will become more apparent in a weakening consumer environment. The firm started shares with a Buy rating and $110 target.
Micrus Endovascular (NASDAQ: MEND) was initiated with an Outperform rating and $20 target at Barrington, citing the company's strong product line, improving salesforce, leading market share position and their expectation for continued strong transition from clipping to coiling.
Acorda Therapeutics (NASDAQ: ACOR) was assumed with an Overweight rating at JP Morgan, as they believe the company's Fampridine-SR for multiple sclerosis is a $500M + opportunity
OTHER INITIATIONS:
Stanford initiated Mariner Energy (NYSE: ME) with a Buy rating and $35 target.
Crocs Inc. (NASDAQ: CROX) just reported decent earnings, getting everyone excited about international growth, but just missing analysts expectations and causing their stock to lose 12% and already I'm seeing tons of bloggers, traders and "market experts" defending the stock here. Sure, they might be right, if you want to better your odds of success and not play the ridiculously random guessing games most investors and traders seem to enjoy playing, don't fight an earnings move especially a momentum stock's earnings move.
Momentum stocks have special qualities that vex investors -- especially value investors --because it's not just about the physical numbers, it's about expectations. Everybody has different expectations and a momentum stock's subsequent price action is the result of how the actual earnings results mingle with those expectations. Don't be foolish enough to believe that your own personal beliefs, expectations, thought process and conclusion matter in the least. I don't care who you are, you matter little to the stock price.
Darden Restaurants (NYSE: DRI) operates about 1,700 casual dining restaurants in the United States and Canada. Its Red Lobster (seafood), Olive Garden (Italian cuisine), LongHorn Steakhouse (steak), Bahama Breeze (Caribbean items) and Capital Grille (steak) chains cater to families, with mid-priced menu items and generally suburban locations. A small group of Seasons 52 restaurants feature a casual grill and wine bar concept. Brinker International (NYSE: EAT) and Chipotle Mexican Grill (NYSE: CMG) are competitors.
The company pleased investors last week, when it guided fiscal Q3 EPS to 83-85 cents. Analysts had been looking for 77 cents. Management also said it expected Y08 EPS of about $2.71-$2.76 ($2.66 consensus).
For those who are new to BloggingStocks, I wrote a series back in May-June of 2007 highlighting what I thought could be the top 25 stocks for the NEXT 25 years. The series was written and researched as an answer to a USA Today article that highlighted the best 25 stocks of the past 25 years.
I wrote about Chipotle Mexican Grill (NYSE: CMG) back on May 21. The stock was trading at $82 per share, although I had been recommending it in my advisory service back when the shares were trading at $40. I thought, and still do, that Chipotle has a chance to be the next major American fast food restaurant chain. In September 2007, the shares hit $114-115, and frankly, I thought the stock was ahead of itself and needed to take a breather. I wrote an update piece explaining that although I still believed Chipotle will be a major player for the NEXT 25 years, it seemed prudent to take the opportunity for short term profits. Commodity costs were rising and the chain was not about to raise its menu prices to offset.
The shares proceeded to go as high as $155 and I thought that maybe I misread this one. The numbers were strong and I thought the momentum in the name might actually keep it afloat. Phew, finally, this one has come back to earth. Chipolte has fessed up that higher commodity costs and a slower spending consumer have taken their toll. The shares are back down to $105, representing a 30 P/E multiple on 2009 earnings per share expectations of $3.40. Still expensive, but this is a very high growth rate company.
I would wait for the shares to trade back below $90 before putting a toe in the water. The concept is viable and very popular. The chain has room to quadruple its store base in the United States and will emerge as the best new concept in this decade and the next. I'd keep an eye on the share value and start accumulating on major dips.
Georges Yared write about great growth stocks today in Game On Investing
MOST NOTEWORTHY: BioScrip, Chipotle Mexican Grill and CoStar Group were today's noteworthy upgrades:
BioScrip (NASDAQ: BIOS) was raised to Buy from Neutral at Broadpoint, as they believe the company's specialty business is worth more than the current price implies.
Baird upgraded Chipotle Mexican Grill (NYSE: CMG) to Outperform from Neutral following Q4 results, citing valuation and a positive view on fundamentals.
CoStar Group (NASDAQ: CSGP) was upgraded to Outperform from Market Perform at JMP Securities, as they expect the company to report a solid quarter next Thursday.
Stock futures were mixed to lower this morning, indicating investors await data and earnings to better determine the state of the economy and whether it is on a brink of recession as former Federal Reserve chairman Allan Greenspan said late Thursday.
Thursday, U.S. stocks sold off, breaking a three-session winning streak following current Fed chairman Bernanke's testimony. While Bernanke hinted at more rate cuts ahead, he also said that economic outlook had worsened in the last three months. The Dow industrials dropped 175 points, or 1.4%, the S&P 500 lost 18 points, or 1.34%, and the Nasdaq Composite dropped 41 points, or 1.74%.
Several economic readings are due out today:
At 8:30 a.m. EST, the Labor Department will report January import and export prices.
At the same time, the Empire State Index will be released, giving an idea of the region's manufacturing activity.
At 9:15 a.m. EST, January industrial production and capacity utilization will be released.
At 10:00 a.m. EST, the University of Michigan will give its preliminary reading on consumer confidence in February.
Chipotle Mexican Grill (NYSE: CMG) experienced some delicious growth over its fourth quarter and full-year reporting period. As the press release issued on Valentine's Day after the market closed indicated, Q4 revenues spiced up almost 32% to $288.9 million, and diluted earnings soared 61% to $0.53 per stub. For the full year, revenues jumped 32% to $1.1 billion, and diluted earnings rocketed 66% to $2.13 per share.
But was this enough to satisfy the after-hours market? Nope -- at the time of this writing, the after-hours quote on Chipotle's stock was down almost 13%. I'll give you a second or two to guess why. Got it yet? Sure you do -- even if you hadn't already read the headlines, you must have intuited that Chipotle didn't meet analyst expectations. The sacrosanct Wall Street crowd wanted a couple pennies more for the quarter.
Well, I say the Chipotle story looks pretty good from where I'm sitting. Restaurant operating margins are up, comps are up over 10% for the quarter and the year, and new stores will continue to be rolled out. Plus, operational cash flow increased 42%. Chipotle, which used to be a part of McDonald's (NYSE: MCD), is becoming a major brand in the restaurant sector, and is a strong competitor against related companies such as Burger King (NYSE: BKC), Wendy's (NYSE: WEN), and Yum! Brands (NYSE: YUM).
Yes, economic times will be difficult going forward, as Ben Bernanke has warned, but I've got a sneaking suspicion Chipotle Mexican Grill's stock will recover from the recent pullback from its 52-week high of better than $155.
This post is part of my series featuring established companies and the smaller, more aggressive or innovative rivals that may eventually succeed them. 
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Next week is sure to be filled with fun and volatile market conditions. The highlight will be the Fed decision on key rates, due on Wednesday, April 30, following a two-day meeting. Anytime the Fed has the floor, the markets listen. Tuesday and Wednesday will be filled with speculation up until the time of the announcement of a cut or pause.
Chipotle
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Stock futures were mixed to lower this morning, indicating investors await data and earnings to better determine the state of the economy and whether it is on a 
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