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Chipotle and Panera vs. Buffalo Wild Wings

Wednesday, 7 Dec 2011 | 6:38 PM ET
Tweet Like Mad: Food
Mad Money host Jim Cramer answers viewer "tweets" on stock and investment questions.On Wednesday, Shannon McCurdy tweets: "why doesn't Buffalo Wings trade with a multiple similar to Chipotle and Panera when they have similar growth rates?"

Chipotle Mexican Grill, Panera Bread and Buffalo Wild Wings may have similar growth rates, but they trade at different multiples. And there’s a reason for that, “Mad Money” host Jim Cramer said Wednesday.

Buffalo Wild Wings has a 21 percent growth rate, Chipotle has a 20 percent growth rate and Panera has an 18 percent growth rate. However, Buffalo Wild Wings sells for 19 times earnings, while Panera sales for 26 times earnings and Chipotle sells for 38 times earnings.

Why the disparity?

1. The “squishy, ethereal qualitative factors”

“Both [Chipotle and Panera] have found a niche that’s extremely popular and incredibly difficult to replicate,” Cramer said. They also focus on healthy eating, which carries a lot of weight with consumers. Buffalo Wild Wings, on the other hand, is a bar and grill, and that’s the largest category in casual dining.

2. Sales numbers

The growth from same-store sales is more important than opening new stores, Cramer said. In same-store sales, Chipotle saw an increase of 11.3 percent, Panera saw a 6 percent rise and Buffalo Wild Wings only saw a 4.25 percent increase at its franchised locations and a 5.7 percent increase from its company-owned stores.

Chipotle is also the leader when it comes to opening new stores. It expects a 14 percent annual increase in store count for 2012. What’s more, it can open at least three to four times the current store count of 1,163 before saturating the country.

Panera is looking at about a 7.5 percent increase and is also far from reaching the saturation point.

Buffalo Wild Wings is forecasting 12 percent unit growth for next year. The problem, Cramer said, is that management has stated the company can only support about 1,400 in the United States. It expects to hit 824 restaurants by the end of this year.

3. Business model

Chipotle owns 100 percent of its restaurants, Panera owns about half and franchises the other half, and Buffalo Wild Wings is only 35 percent company owned and 65 percent franchised.

“Generally, we pay less for companies that rely on franchises to drive growth because franchising can really limit your upside,” Cramer said.

4. Restaurant margin levels

Chipotle has the best restaurant margin levels of the bunch at 26.7 percent, Buffalo Wild Wings has 19.3 percent and Panera has 17.9 percent. But Cramer thinks Chipotle and Panera are both in a better position to handle rising costs than Buffalo Wild Wings since they have a greater ability to raise prices.

“I think Chipotle, Panera and Buffalo Wild Wings are all pretty fairly valued where they are,” Cramer said, “since Chipotle deserves a higher multiple than Panera, which deserves a higher multiple than Buffalo Wild Wings, even as all three are pretty fabulous investments.”

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