Chipotle (CMG) Suffers Einhorn Effect; GM Praised

Wyatt Investment Research

Two weeks ago I warned you that another company was about to be Einhorned at this week’s Value Investing Congress. “Which Company Will David Einhorn Badmouth Next,” I wondered.

The answer? Chipotle (CMG).

The famed hedge fund manager slammed the burrito and quesadilla chain today in his annual presentation at the New York conference for value investors. Einhorn said he is short-selling Chipotle shares because of increased competition from rival Taco Bell , which is owned by Yum! Brands (YUM).

The sluggish U.S. economy is making cheap fast-food chains such as Taco Bell more appealing to the average American. While Chipotle isn’t exactly pricey, it’s more expensive than Taco Bell.

Obamacare is another thing that will hurt Chipotle’s business, Einhorn theorized.

The president’s new health care laws will force companies such as Chipotle to offer insurance coverage to its employees – something that is sure to weigh heavily on costs, Einhorn said.

As usual, Einhorn’s criticisms of a company are doing serious damage to its stock. Chipotle shares are down 3.2% in the two-plus hours since Einhorn wrapped up his presentation just after 11 a.m. eastern.

If it’s anything like last year’s Einhorn “victim” – Green Mountain Coffee Roasters (GMCR) – Chipotle’s decline likely won’t end there. GMCR’s once high-riding stock fell 10% in a matter of hours last year after Einhorn slammed the specialty coffee company at the Value Investing Congress. His critiques sent GMCR on a yearlong death spiral in which its shares were reduced by two thirds.

So that doesn’t bode well for Chipotle.

One company that actually got Einhorn’s blessing this morning was General Motors (GM). Einhorn said that the leading U.S. automaker is “much healthier now”, with a more appealing pipeline of cars. The praise has pushed GM shares up 3.1% in mid-day trading.



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