Who’s Better? Panera or Chipotle?
This week Danny wants to know about two of his favorite fast, casual restaurants – Chipotle Mexican Grill (NYSE: CMG) & Panera Bread Company (NASDAQ: PNRA).
He says, “Jay I have to eat on the run quite a bit and I’m not a big fan of greasy cheeseburgers and fries. Instead I like fresh, natural food that is served quick at places like Panera & Chipotle. How do these restaurants score from a moral standpoint?”
As we consider these choices, doesn’t it make sense to consider the moral implications of where we spend and invest our money? If a company blatantly violates your values do you want to shop or invest in that company? For many investors the answer is a resounding no!
“Proud to Own” Investing
Relatively few companies violate our moral and ethical screening process. For example, there are approximately 10,000 publicly traded companies (including both U.S. and ADRs) which are deemed large enough for prudent investment selection. Out of that universe, only 6.5% violate our moral and ethical screens. That leaves over 93% of the securities’ universe from which investment managers and/or individual investors can choose.
As investors we use a “proud to own” process:
- It must not violate your faith and values. Some of the types of companies we can avoid include those involved in the abortion industry, those producing explicit entertainment and pornography, those conducting embryonic stem cell and fetal tissue research, companies funding and lobbying for homosexuality, those involved in vices like alcohol, tobacco and gambling and companies that are abusing the environment.
- It should be a company that complements your faith and values. This involves finding companies: Helping the poor and defenseless; Protecting the sanctity of human life; Producing morally sound entertainment; Finding cures for life threatening diseases; and Improving the society we live in…
- It should be a company with strong profit potential. This involves finding companies in solid financial condition that have strong profit potential and/or provide strong cash flows via dividends. We use a five-point inspection to evaluate each investment we are considering. We analyze a company’s earnings potential, price momentum, risk, financial health, and its current valuation. Our goal is to find quality companies that stay true to your values AND are profitable! This is not an either /or scenario but rather a winning combination.
Let’s first take a look at Chipotle…
Chipotle Mexican Grill, Inc. develops and operates fast-casual, fresh Mexican food restaurants in the United States, Canada, the United Kingdom, and France. Its restaurants primarily offer burritos, tacos, burrito bowls, and salads.
Financial analysis of Chipotle
We use a five point financial inspection to evaluate a company.
1. Valuation – Chipotle is a little expensive from a valuation standpoint. Its PE is 40. However it does tend to grow so its PEG ratio is below 2 at 1.65.
2. Earnings momentum – It is ranked neutral, meaning it is neither positive nor negative.
3. Price momentum – The stock has been trending down on a short and up on a long-term basis. It is up about 6.5% over the past 12 months. Its relative strength rating is just 61 so the price momentum is negative.
4. Risk – It has a beta of .54 so it is about half as risky as the overall market. So its risk profile is positive.
5. Financial health – the company is in solid financial condition with strong sales growth, abundant cash flow, low debt, and solid fundamentals.
Overall from a financial perspective Chipotle stock is a buy…
Moral analysis of Chipotle
From a moral perspective Chipotle fails one of our moral screens:
Homosexual activism – It is very active in promoting and supporting the homosexual community and organizations that lobby for homosexual rights. It has promoted homosexuality in its marketing and advertising efforts, sponsored homosexual organization events, and given charitable donations to homosexual organizations.
Two better alternatives to Chipotle in my opinion are Panera Bread (PNRA) and Jack in the Box (JACK), which owns the Mexican fast casual restaurant Qdoba. For comparison purposes Panera scores better on both a financial and moral perspective.
A look at Panera
Panera Bread Company owns, operates, and franchises retail bakery-cafes in the United States and Canada. Its bakery-cafes offer fresh baked goods, sandwiches, soups, salads, and custom roasted coffees, and other complementary products, as well as provide catering services under the Panera Catering name. The company also provides fresh dough, produce, tuna, and cream cheese items, as well as sweet goods items through its company-owned and franchise-operated bakery-cafes.
Financial analysis of Panera
On the financial side:
1. Valuation – Panera looks neutral from a valuation standpoint. Its P/E is around 29 and its PE/G ratio is under 2 at 1.88.
2. Earnings momentum – It is ranked neutral, meaning it is not favorable nor unfavorable.
3. Price momentum – Panera’s stock has been trending down on a short-term basis but up on a long-term basis. It is up over 15% over the past 12 months. Its relative strength rating is 76 so the price momentum is positive and higher than Chipotle.
4. Risk – It has a beta of .82 so it is 18% less risky than the overall market. It does have a slightly higher risk profile than Chipotle.
5. Financial health – the company is in solid financial condition with strong sales growth, abundant cash flow, low debt, and solid fundamentals. This is a positive here.
Overall, Panera is also rated a “Buy” from a financial perspective and takes a slight edge over Chipotle when we compare them financially.
Moral analysis of Panera
On the moral side, Panera also scores higher. It is focused on giving back to the communities it operates in. It doesn’t violate any of the moral screens we use and it has campaigns to give back to society:
At Panera Bread®, it believes in giving back to our local communities. It has worked to help combat hunger for over 25 years. Since then, its efforts to fight hunger have grown to include various charitable initiatives and donation programs.
Panera finds new ways to help out in the communities its serves. Working with Feeding America®, the nation’s largest network of food banks, is one way it does just that. Providing high quality nutritious Panera food to those in need is one small way Panera is working to fight hunger in America.
And the winner is…
Panera is clearly a “proud to own” company while Chipotle falls short on both the financial and moral side. I give Panera the clear victory in a head to head battle with Chipotle when we consider both the moral and financial implications of owning the stock.
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