Should Chipotle Mexican Grill Investors Beware of Super Duper Size Me?

And you thought McDonald’s was unhealthy…

Jul 13, 2014 at 12:04PM

Health food?  Source:  Chipotle Mexican Grill

Organic healthy food is all the rage, and Chipotle Mexican Grill (NYSE:CMG) is right in the center of it. As many consumers ditch unhealthy traditional fast food, such as what comes from McDonald's (NYSE:MCD), Chipotle finds its sales and income continually busting new records. Its "Food With Integrity" is at the right place at the right time. But is it really a healthy alternative?

Super Size Me
Recall about a decade ago, the anti-McDonald's documentary Super Size Me. To prove a point, the star of the movie ate nothing but McDonald's for a period of 30 days, and consumed the massive calories that came with it. By all measures, Morgan Spurlock, the star of the film, quickly became unhealthy -- he gained more than 24 pounds. He reportedly made the film out of concern about the obesity epidemic going on in the United States.

McDonald's responded by axing the super-option from its menus. There's not much hard evidence to suggest that the film itself hurt McDonald's top or bottom line. Then again, McDonald's never exactly claimed to be a health-food mecca in the first place. It's not like we were scoffing down double quarter pounders with cheese and fries and a milkshake without knowing it wasn't exactly the most nutritious option out there.


Source: Chipotle Mexican Grill

Is Chipotle Mexican Grill really any better?
Chipotle Mexican Grill is very good at marketing and creating a perception of healthy. The company has managed to steer full attention to its non-antibiotic, non-hormone, non-GMO, grass-fed organic food. What are the long-term health benefits of, for example, non-GMO versus GMO? The jury is still mostly out. But one thing we do know for sure from a plethora of data is that excessive amounts of fats, carbohydrates, and calories are a recipe for bad health.

In a recent interview with Bloomberg, Steve Ells, founder of Chipotle Mexican Grill, was asked, "Has McDonald's changed its business plan because of Steve Ells?" He was a bit evasive, but one of the other commentators stated, "I go into a Chipotle and it's like nutrition."

Odd. I appreciate the top-quality ingredients that are my red meat, pork, cheese, sour cream, and salsa, which are all rolled up into a burrito the size of a basketball; but let's step back a minute here. Is its over-sized food really that healthy in a country where obesity is becoming the No.1 cause of premature death?

Big Mac ain't so big
McDonald's food almost seems like diet food when you talk numbers. Take the signature Big Mac, for example. A Big Mac has 550 calories, 29 grams of fat, and 46 carbs. A Chipotle Mexican Grill burrito with steak, brown rice, black beans, tomato salsa, sour cream, and cheese packs on more than 1,000 calories, 41 grams of fat, and 109 carbs.

Throw on a McDonald's large side of fries with 542 calories, and even that is less than a Chipotle Mexican Grill side of chips and guacamole. And you thought McDonald's was bad. Ells is right to point out that "you" are in charge of what goes on your burrito; you are in control of what you eat. However, the same could be said about McDonald's, which offers salads and other alternatives to burgers and fries.

Ells says in the interview that people seeking lower-calorie options can order a salad with grilled meat, tomato salsa, and some cheese. According to Chipotle's website, that 11-ounce salad with chicken has 310 calories, 14.5 grams of fat, and 7 carbs. McDonald's offers several grilled-meat salads of similar size, but less calories and fat.

Healthy growth and fattened wallets
Over the last five years consumers and investors have embraced Chipotle Mexican Grill more than McDonald's. During that time, Chipotle Mexican Grill's stock has risen around 600% while McDonald's investors are sitting on doubles (or is it McDoubles?)

From 2008 to 2013, McDonald's revenue grew 20% to $28 billion while net income jumped 30% to $5.6 billion. Chipotle Mexican Grill meanwhile tacked on 141% revenue growth to $3.2 billion and 318% net income growth to $327 million. It looks like we're all consuming a lot more calories these days of the two, which is helping investors in both grow financially strong and healthy.

Foolish takeaway
At the end of the day, perception rules. Right now, the perception is that Chipotle Mexican Grill is healthy and McDonald's is not, even if you consume double the calories, fat, and carbs. However, perceptions can change, and Chipotle Mexican Grill is potentially more vulnerable, and has more to lose, if consumers wake up to the reality that the food may not be as healthy as they think -- whereas they were never fooled by McDonald's. Just be on the lookout for a Super Duper Size Me documentary about Chipotle Mexican Grill.

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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and McDonald's. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Keeping it simple.

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