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Einhorn Bearish on Chipotle, but Customers Push Back


Is Taco Bell really going to make a dent in the burrito market? A report from the Value Investing Congress.

MINYANVILLE ORIGINAL Chipotle Mexican Grill (NYSE:CMG) fell 4.53% on high volume after hedge fund manager and Green Mountain Coffee Roasters (NASDAQ:GMCR) archenemy David Einhorn recommended short selling Chipotle's stock. Einhorn, speaking at the Value Investing Congress in New York, claimed that the Denver-based burrito company was facing stiff competition from rivals other than regular Chipotle competitors like Panera (NYSE:PNRA) and burrito chain Qdoba, which is owned by Jack in the Box (NASDAQ:JACK).

According to Einhorn, Taco Bell (NYSE:YUM) and its line of mid-range Mexican food called "Cantina Bell" represent the biggest threat to Chipotle's customer base; 50% of customers who have tried both restaurants either prefer Cantina Bell or think the two are about equal. As both companies face rising food prices due to drought, Cantina Bell (whose prices are lower) can afford to raise them a bit, while Chipotle customers are already beginning to complain that the price of a burrito is a little bit steep. Most damning of all, said Einhorn, was that Chipotle insiders have sold about $176 million worth of stock.

Some commentators, though, weren't so negative; by 1:30 p.m., Jeff Macke of "Breakout" had come out strongly against the idea of Taco Bell as a serious competitor for Chipotle, tweeting:

$YUM is to $CMG as feeding tubes are to eating. CMG has plenty of problems, Taco Hell isn't one of them.

TheStreet's Chris Ciaccia agreed, tweeting:

So after testing Einhorn's Cantina Bowl at $YUM…it's nowhere close to $CMG. Did he even taste it?!?!?

Chipotle's customer base has come out surprisingly fiercely in support of the human-head-sized burritos that they love, and it might take more than a classic Einhorning to lay the company's stock low.

Other presentations at the Value Investing Congress were less controversial; Minyanville contributor Lloyd Khaner gave a light-hearted, baseball-themed talk praising Jamba Juice (NASDAQ:JMBA) and its plans to install machines in 1,500 public schools by the end of 2013. The stock responded well, jumping 6.64% to $2.41 in midday trading. Brand recognition for the California-based juice company isn't doing so great, though: A fellow came up to me at the refreshment break after Khaner's presentation and asked me if I'd ever been in a "Jamba Joy," and I didn't really know how to answer him. Any ideas?

(See also: Sell Chipotle, Buy Cigna.)
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