Chipotle spends a lot of time thinking about how to make its stores better and better, and how to distinguish itself from other companies in the restaurant business. Darden seems to do nothing of the sort. It seems to fail repeatedly at creating new concepts. I bet that Chipotle will blow out Shophouse when it is ready, and it is also about to go overseas with Chipotle in a meaningful way. International's been a total bust for Darden.
I think the wonder of Darden is that someone hasn't challenged the company before, and it took so long for anyone -- in this case Starboard and Barrington, two hedge funds -- to challenge the company.
Now, when we see companies breaking up in order to bring out value, they tend to be those that are unwieldy and difficult to determine their worth. Think about some of the best ones: Fortune Brands (FBHS), Tyco (TYC), Philip Morris (PM), Kraft (KRFT), Ralcorp (now owned by ConAgra (CAG)), Marathon Petroleum (MPC), ConocoPhillips (COP) and American Standard. All of those companies had two different value streams under the same roof -- perhaps one with fast growth with low-cash-flow spinoff, and the other with slow growth with a dividend. Or, quite simply, they had different disparate entities that didn't belong to each other but were worth far more separate.
In each case, you got big moves all across the board when there were hints that the companies would split up, to the actual announcement, to the day of the split. Then, course, there was the aftermath, when analysts embraced the pieces or we had some rather rapid takeovers.
Contrast those with Darden, for which I think the Red Lobster independence will simply produce a terrible restaurant chain and a slow-growing restaurant chain, both with uncertain cash flows. It's the worst kind of deal.
Darden and Chipotle demonstrate that, in the end, what shareholders really want out of a restaurant chain isn't a split-off of a good restaurant and a bad restaurant, like some sort of "good bank, bad bank" solution -- which is what this really us. Shareholders want a company that grows within reason, with consistent comps gains and a differentiated model that produces long-term returns. That's something that Darden has proven to be incapable of doing under CEO Clarence Otis, but which is the be-all and end-all of the co-CEOs Steve Ells and Monty Moran.
My conclusion? Either dismiss Otis and bring in some new blood, or simply sell Darden or even short it, perhaps with puts so you do not have to pay that dividend. But buy Chipotle, even up at these levels, because it's doing everything right at the same time that Darden, surely, is doing everything wrong.
Random musings: Chipotle Chief Financial Officer Jack Hartung is scheduled to appear on Mad Money tonight.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.
Editor's Note: This article was originally published at 10:42 a.m. EST on Real Money on Feb. 3.