Yums-Brands-Taco-Bell-300x189Shares of Chipotle have been battered over the last month. The main culprit is a hedge fund call that suggests the company has reached its peak.

That is utter and complete nonsense. A cynic might say the comments coming from David Einhorn are self-serving at best.

His main theory is that Chipotle is about to be hit by intense competition from Taco Bell. The Yum Brands (NYSE: YUM) fast food restaurant is apparently rolling out fare that is designed to compete with Chipotle at a much lower price point.

It sounds good on the surface, but how simplistic. This is not McDonald’s rolling out coffee in its attack on Starbucks. Not even close.

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This is about a something entirely different: Quality.

I don’t think Taco Bell can pull it off. There is just no way.

If I want Chipotle style Mexican food I go to Chipotle. If I want a quick and dirty cheap taco, I go to Taco Bell. My behavior is not going to change and I suspect a majority of Chipotle customers feel the same way.

Chipotle-500-kjhkjhkjh-300x225Now, let’s get to specifics. How can Earnings Players profit from recent trading activity in Chipotle?

It turns out Chipotle reports earnings results next week. There’s our opportunity and trigger. In the last reported quarter the company delivered results that were less than stellar. Shares plunged. In July after the news was released.

They bounced back nicely until Mr. Einhorn opened his mouth. Oh well, the selling of late creates a trading opportunity for Earnings Players that we will jump on gladly.

Think about it for a minute. Most stocks, especially consumer stocks have rallied in September, but not Chipotle. The trigger for those gains is the Federal Reserve and its QE Infinity program. With the Einhorn led selling in Chipotle, shareholders have missed out on those gains.

In the short term that makes the stock cheap, dirt cheap. We can see how cheap by looking at Yum Brands and its earnings report released after the market closed on Tuesday.

Yum announced it made a profit of 99 cents per share for the quarter ending September 30, 2012. Analysts were expecting a profit of 97 cents per share. Yum’s $3.57 billion in sales did miss estimates, but the company raised full year guidance to at least 13%.

The news was a bit unexpected. With much of its overseas growth tied to a slumping Chinese economy it would not have been a surprise to see an opposite result.

The conclusion I come to is that fast food fare is alive and well. It is one more piece of evidence that shows the consumer is stronger than most believe.

It also sets the table for a wonderful earnings trade in Chipotle when that company reports results next week.

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