On Tuesday, Yum! Brands, Inc. (NYSE:YUM) released its third quarter earnings, and the numbers were better-than-expected. One area cited by the company that helped drive growth was its Taco Bell brand.

david einhorn

For some, this may come as a surprise, but for one hedge fund manager, that’s old news.

On Oct. 2 at the Value Investing Congress 2012, David Einhorn, CEO of Greenlight Capital, spoke about the resurgence of Taco Bell and its competition against Chipotle Mexican Grill, Inc. (NYSE:CMG). He went so far as to promote it as a better offering, thanks to its additional locations, lower prices, and quicker service.

According to the Wall Street Journal, Einhorn said at the conference, “Taco Bell has started to eat Chipotle’s lunch.”

You can’t help but ask if Einhorn had some sort of crystal ball, as Yum’s third quarter profit jumped 23% from improvements at its U.S. Taco Bell, Pizza Hut, and KFC chains. The rise exceeded analysts’ estimates and increased expectations for the year to 13% earnings-per-share growth, up from the prior 12% estimate.

For the third quarter, Taco Bell’s U.S. same-store sales increased 7%, as compared to Yum brethren’s 6% rise for Pizza Hut’s, and KFC’s 4% jump.

As for the chain’s offerings, Taco Bell’s new Doritos Locos Tacos (a nacho cheese Doritos taco shell) had been launched earlier in the year, and from its success, the company will add “cool ranch” and other Doritos-flavored shells, reported the Wall Street Journal.

In addition, the chain has also received a strong response to its July-launched “Cantina Bell” menu, which emphasizes fresh and higher-quality ingredients.

Again showing he is a smart man, Einhorn also noted last week that this new menu was driving consumers away from Chipotle’s burritos and burrito bowls that look a little familiar to some Cantina Bell items. He noted the pricing was about 80% of the typical Chipotle offering.

To expand his research, Einhorn spoke with Taco Bell franchisees and operators. They also saw the Cantina Bell menu as a big success, and believed they were grabbing customers away from Chipotle. New items were expected to be added to the menu.

Einhorn thought Chipotle was under a serious risk in losing its loyal customers to Taco Bell’s Cantina Bell menu, with an ongoing threat at lower price points affecting the company’s ability to increase prices. With commodity costs on the rise and additional healthcare expenses, these would be serious issues for Chipotle Mexican Grill, Inc. (NYSE:CMG) in the next year.

In the past, when the company had fallen short of expectations, the market crushed them.

Last week, Einhorn repeated he loves eating at Chipotle, but the stock’s expectations are too high with approaching headwinds.

Year-to-date, Chipotle Mexican Grill, Inc. (NYSE:CMG) is down 15.45%. The company will report its third quarter earnings on Oct. 18.