Monthly Archives: July 2014

DryShips: Zacks’ Bear of the Day Play

Are you one of the investors still in DryShips Inc. (DRYS – Analyst Report)? This Zacks #5 (Strong Sell) still hasn’t recovered from the Great Recession.

DryShips owns 42 drybulk carriers and tankers and ships worldwide. It also owns and operate 11 ultra deepwater drilling units.

Drybulk shipping was hot prior to the recession but the industry overbuilt and that pushed rates down. It is one of the few industries that has yet to recover.

Full Year Estimates Sliding

It’s been a tough couple of years for DryShips. The last time the company was profitable was in 2011 when it made $0.43.

Last year, it lost $0.28 per share.

While the analysts started out more hopeful for 2014, that hope has begun to fade.

The 2014 Zacks Consensus Estimate has sunk to just $0.04 from $0.20 ninety days ago. The story is the same for 2015 with the Zacks Consensus Estimate sliding to $0.27 from $0.45.

DryShips is expected to report earnings on Aug 5 after the market closes. It doesn’t have a track record of beating the estimate, however. It’s last beat was in 2011.

DryShips Has Missed the Rally

DryShips has long been a favorite of investors but shares have moved in a narrow trading range over the last 5 years while the S&P 500 has soared.

You would have been far better off just buying the S&P 500.

And with earnings estimates sliding again, it doesn’t look like there’s a turnaround in the near future.

If you’re looking for a shipper that is growing its earnings, consider Kirby Corporation (KEX – Snapshot Report). It is a Zacks Rank #1 (Strong Buy) and is expected to grow its earnings by the double digits both this year and next.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

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Lithia Motors: Zacks’ Bull of the Day Play

Lithia Motors, Inc. (LAD – Snapshot Report) beat again as both new and used car sales kept humming along. This Zacks Rank #1 (Strong Buy) is still expected to grow earnings by the double digits both this year and next as the auto market remains red hot.

Lithia is one of the largest automobile retailers in the United States with 101 stores in 12 states. It sells 28 brands of new and used cars as well as operates repair and maintenance.

It serves both urban and rural markets and is therefore a good barometer of the nationwide economy.

Another Earnings Beat and Record Quarter

On July 23, Lithia reported second quarter results and beat the Zacks Consensus by 7%. Earnings were $1.34 compared to the Consensus of $1.25.

Anyone following the company shouldn’t have been surprised by yet another beat because it has only missed once in the last 5 years and that miss was all the way back in 2010.

Check out the beautiful earnings surprise chart.

Revenue rose 21% to $1.2 billion from $1 billion. Same store sales jumped 11% as all of its segments saw double digit sales growth for the first time in the quarter.

New vehicle same store sales rose 12%, Used vehicle retail same store sales grew 11%, while Service, body and parts jumped 10%. The gain in Service was due to a 10% improvement in customer pay work and a 15% increase in warranty activity.

More Acquisitions in 2014

Lithia has slowly been adding stores. It purchased another 3 stores in the quarter and has purchased or opened 8 new stores this year.

It has also agreed to combine with DCH Auto Group which will add 27 locations and $2.3 billion in revenue to the company. That is expected to close by the fourth quarter of 2014.

Double Digit Earnings Growth to Continue

Car sales continue to be hot. Through the second quarter, the annual North American total rose to 16.9 million, the highest since July 2006.

Lithia guided full year at $4.95 to $5.00, which was above the Zacks Consensus of $4.90.

The analysts raised their estimates, with 2 up for 2014 in the last 7 days. The Zacks Consensus jumped to $5.01, or above the guidance range.

That is earnings growth 25.7%.

The analysts are equally as bullish on 2015 with further earnings growth of 28%.

Shares At New Multi-Year Highs

After the solid earnings report, Lithia shares jumped to new 5-year highs. But since that initial exuberance, shares have pulled back over 5%, creating a buying opportunity.

Still, shares aren’t exactly cheap anymore. Lithia has a forward P/E of 18.

But with auto sales remaining hot, Lithia is one stock investors should keep on their short list.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

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Inter Parfums: Zacks’ Bear of the Day Play

Earnings estimates have been falling for Inter Parfums (IPAR – Snapshot Report) after the company released preliminary Q2 results on July 23. While sales were in-line with estimates, management lowered the upper-end of its full year EPS guidance. This caused analysts to revise their estimates meaningfully lower for both this year and next year, sending the stock to a Zacks Rank #5 (Strong Sell).

While shares of Inter Parfums have sold off a bit since the preliminary Q2 results, the stock does not look like a value at more than 23x forward earnings.

Inter Parfums manufactures, markets and distributes fragrances through two segments: European-based operations and United States-based operations. The company produces and distributes its European-based prestige products primarily under license agreements with brand owners like Montblanc, Jimmy Choo and Karl Lagerfeld. The company recently sold its Burberry line of fragrances to Burberry itself.

The company’s United States operations markets prestige brands as well as specialty retail fragrances, which are sold under trademarks owned by the company or pursuant to license or other agreements with the owners of the Anna Sui, Alfred Dunhill, Oscar de la Renta, Shanghai Tang, Agent Provocateur, Gap, Banana Republic, Brooks Brothers, bebe and Betsey Johnson brands.

Preliminary Second Quarter Results

Inter Parfums reported preliminary second quarter results on July 23. The company plans to issue detailed results on or about August 11.

Net sales of ongoing brands (excluding Burberry brand sales) increased 22% to $118.2 million, which was in-line with consensus. European-based product sales rose 31%, driven by new product launches, while U.S.-based sales declined 5%. According to the company, U.S.-based sales declined “due to a challenging comparison with the prior year”.

Revised Guidance

In the Q2 press release, management stated that it continues to expect 2014 net sales of approximately $495 million. However, the company lowered the upper-end of its EPS guidance range from $0.93-$0.98 to $0.93-$0.95. This prompted analysts to revise their estimates meaningfully lower for both 2014 and 2015, sending the stock to a Zacks Rank #5 (Strong Sell).

The 2014 Zacks Consensus Estimate is now $0.95, down from $1.04 before the report. The 2015 consensus has fallen from $1.28 to $1.22 over the same period. The consensus estimate for Q2 also declined. It is currently $0.21, down from $0.23.

Premium Valuation

Shares of IPAR are down more than 5% since the preliminary Q2 report, but the valuation picture does not look very attractive here. The stock trades at more than 23x 12-month forward earnings, above its 10-year median of 19x. Its price to sales ratio of 1.7 is also above its historical median of 1.2.

The Bottom Line

With declining earnings estimates and premium valuation, shares of Inter Parfums could remain under pressure for a while. Investors should consider avoiding the stock at least until its earnings momentum improves.

Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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Hanesbrands: Zacks’ Bull of the Day Play

Estimates have been soaring for Hanesbrands (HBI – Analyst Report) after the company delivered strong Q2 results and management raised its EPS guidance on July 23 thanks in large part to expanding profit margins. It is a Zacks Rank #1 (Strong Buy) stock.

Hanesbrands markets everyday basic apparel under brands like Hanes, Champion, Playtex, Bali, Maidenform, Flexees, JMS/Just My Size, barely there, Wonderbra and Gear for Sports.

Second Quarter Results

Hanesbrands delivered better-than-expected second quarter results on July 23. Adjusted earnings per share came in at $1.71, beating the Zacks Consensus Estimate by 21 cents. It was a 44% increase over the same quarter last year.

Net sales rose 12% to $1.342 billion. Excluding the Maidenform acquisition, however, net sales were up approximately 1% on a constant currency basis.

Adjusted gross profit increased 160 basis points to 37.9% of net sales as the company continued its “Innovate-to-Elevate” strategy of harnessing “synergies from combining the company’s brand power, supply chain leverage, and product innovation platforms.”

Meanwhile, adjusted selling, general and administrative expenses declined from 21.2% to 20.6% of net sales as the company leveraged its fixed expenses. This led to 27% growth in adjusted operating income as the operating margin expanded from 15.1% to 17.2% of net sales.

Estimates Soaring

Following strong Q2 results, management raised its guidance for the remainder of the year. The company now expects full-year adjusted EPS between $5.20 and $5.40, which is up from its previous guidance of $4.80 to $5.00.

The new guidance was also well above consensus, which prompted analysts to unanimously raise their estimates for both 2014 and 2015. This sent the stock to a Zacks Rank #1 (Strong Buy).

The 2014 Zacks Consensus Estimate is now $5.39, up from $5.01 before the Q2 report. The 2015 consensus is currently $6.05, up from $5.71 over the same period.

As you can see in Hanesbrands’ “Price & Consensus” chart, consensus estimates have been steadily rising over the last several quarters:

Valuation

Shares of Hanesbrands are up more than +45% year-to-date. But the valuation picture still looks reasonable. The stock trades at less than 18x 12-month forward earnings, which is a slight discount to the industry median of 19x. Its price to sales ratio of 2.1 is also below the industry multiple of 2.5.

The Bottom Line

With expanding profit margins, excellent earnings momentum, and reasonable valuation, Hanesbrands offers investors attractive upside potential.

Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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E*Trade: Zacks’ Bear of the Day Play

The gravy train is going to stop eventually. It’s been one heck of a ride so far. I’m not saying it ends today, but it’s going to end one day. This market has nearly tripled off the bottom in March 2009, screaming higher every day. It seems like the term “All-time high” gets said every single day.

Many companies have been able to cash in on the success of the stock market. Some have done so more than others. In a great trading environment like this you’d think that the online brokerage business is the place to be. So when I see a company not flourishing in what is a great environment, it makes me a bit nervous. That’s the current situation we have with our Bear of the Day, E*Trade Financial (ETFC – Analyst Report).

Baby Steps

We’ve all seen the commercials with the hilarious talking baby. This cute little guy amuses us with his mix of investing knowhow and infant problems. Getting a baby’s perspective on his crib is one of the funnier commercials in the series.

What’s not so funny is E*Trade’s Zacks Rank #5 (Strong Sell) rating. Two analysts have revised their current year earnings targets to the downside over the last month. This pessimism has brought consensus down from $1.06 to $1.02 per share for the current year and down from $1.24 to $1.16 for next year.

E*Trade is facing increased competition online from the likes of ScottTrade, Interactive Brokers, and others. When it comes down to it, the commission per trade is beginning to be the only thing that sets these online brokers apart. You could argue that the platforms are different but having tried several myself I find there is a great deal of similarity. After all, there are only so many ways that you can set up a computer screen for trading stocks.

Marketing Efforts

In a mad dash to get rollover monies from the burgeoning baby boomer retirees, E*Trade has aggressively been incenting new customers to come over. Some of these incentives are straight cash rewards while other are no commission trades for a period of time.

After reaching a high of $25.58 in March of this year, E*Trade has struggled to keep its head above the $20 mark. It has seesawed back and forth at that level several times. Now you have a stock that is nearing the bottom end of a trading range while trading below its 40 day moving average. That could spell the onset of a downtrend coming for E*Trade.

If you’re looking to cash in on the brokerage business, a better idea may be to go with one of the older, established full-service brokerage firms. For example, Piper Jaffray (PJC – Snapshot Report) is currently a Zacks Rank #2 (Buy) that may be an attractive alternative.

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Fairchild Semi: Zacks’ Bull of the Day Play

Fairchild Semiconductor (FCS – Snapshot Report) is a global company focused solely on designing, manufacturing and marketing high performance semiconductors for multiple end users. Their components are used in computer, telecommunications, automotive, consumer and industrial applications. Fairchild supplies logic, analog, mixed signal, non-volatile memory as well as discrete power and signal technologies solutions. That’s a fancy way of saying they make microchips for all types of things.

Fairchild is a Zacks Rank #1 (Strong Buy). Analysts have been very bullish on Fairchild as of late. Seven analysts have raised their estimates for the current year and six for next year within the last 30 days. This bullish attitude pushed consensus up from 50 cents to 64 cents for the current year and up from 84 cents to 96 cents for next year.

FCS has a great track record of beating earnings recently. Over the last four quarters FCS has beat every quarter by an average of 4 cents. Last quarter’s beat came in at 20 cents, 9 cents better than analyst consensus of 11 cents per share.

Industrial and appliance demand were seasonally strong in Q2 2014, part of the reason for the big beat. The other was automotive sector demand was up 9% quarter-over-quarter and 14% year-over-year. This helped push gross margin up 3 points to 33.4%.

Along with the big beat last quarter, Fairchild bought back 5 million shares or 4% of shares outstanding. The company plans to buyback another $100 million worth of stock over the next two to four quarters. This share buyback is a hidden dividend for investors.

My favorite part about this stock isn’t the earnings surprises or the estimate revisions. It’s the chart and right now may be the perfect time to load the boat. After hitting a low of $12.25 in late April the stock surged higher, hitting $16.49 in mid-June before pulling back to $14.78 on July 10th.

The stock caught a bid at that level and reached a new 52 week high of $17.30 on July 24th. Over the last several days FCS has pulled back again. If you take the move from the April low to the 52 week high you can draw in Fibonacci retracement levels where the stock is likely to have support. The 38.2% retracement sits at $15.38, a level where the stock found some buyers over the last couple of days.

In addition to finding some support at the 38.2, the stock is also trading right at its 40 day moving average. That means that the overall longer term uptrend is still tact even while the stock has made a significant pullback. Stochastics have retreated from their previously overbought condition and are now basically neutral.

Here you have all the right ingredients for profits. You have a stock that analysts are very bullish on right now, a great chart, and a stock buyback coming up soon. That’s why I have Fairchild Semi as our Bull of the Day.

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Mattel: Zacks’ Bear of the Day Play

It has been extremely rough as of late for some toymakers as the world goes increasingly digital. Companies are now forced to find tie-ins to movie or TV franchises in order to keep their brands in the public eye and boost sales.

Some companies in this space have been successful lately with this strategy, such as Hasbro (HAS – Analyst Report) and their Transformers brand. Others, however, have struggled to do this and are also seeing their more ‘traditional’ toys fall by the wayside too. This is especially the case for a classic toy company which is going through an extremely bad rough patch, Mattel (MAT – Analyst Report).

Mattel in Focus

Mattel was founded in 1945 and is headquartered in Segundo, California. The company has a ton of world famous brands including Fisher-Price, Hot Wheels, and of course, Barbie. While the stock was a strong performer in years past, consumers seem to be tiring of many of the firm’s all-star brands in recent years, leading to many questions about how Mattel can revive interest in its products.

These worries are especially prevalent following the company’s most recent earnings report. The company saw extremely weak revenue figures across a number of segments, leading to a huge earnings miss of over 84%.

Recent Earnings

In particular, Mattel saw a 17% decline for Fisher-Price Brands, while Mattel Girls & Boys Brands declined 13% (year-over-year). The main culprit for this decline was easily the Barbie brand—which is in the Mattel Girls & Boys Brands segment—as this declined 15%. And thanks to this decline, sales for Barbie have fallen in eight of the last 10 quarters, further underscoring that this isn’t a one quarter speed bump.

If that wasn’t enough, investors should also note that gross margins were also an issue for MAT in the most recent quarter. Margins were down 490 basis points to 46.4%, while operating profits barely squeaked by into the green, sparing MAT from having two quarters of losses in a row.

Estimates & Analyst Opinion

This earnings miss actually marks the third straight miss for MAT. And it isn’t like Mattel is just barely missing expectations either, as each of these misses have been by double digits, while the past two (including the most recent one) were misses of at least 84%.

Given these factors and the declining sales trends for many of its key brands, analysts have had no choice but to cut their earnings estimates for MAT stock. In fact, not a single estimate has gone higher in the past sixty days for either the current year, next year, or current quarter time periods.

The magnitude of these estimate cuts have also been pretty severe, as MAT is now expected to earn just $1.02/share today for the current quarter, down from $1.17/share 30 days ago. Meanwhile, for the current year, estimates have fallen from a $2.47/share consensus 60 days ago to a $2.17/share consensus today, pushing MAT’s projected growth rate to a contraction of nearly 16% year-over-year.

For these reasons, it shouldn’t be too surprising to note that MAT currently has a Zacks Rank #5 (Strong Sell), and that we are looking for more underperformance from this stock in the months ahead.

Other Picks

If you want to stay in the toy/game industry though, there are a handful of better ranked picks out there. Hasbro, for example, currently has a Zacks Rank #2, and may be better positioned thanks to the revival of many of its brands.

Beyond that, there are a number of game studios such as Take-Two Interactive (TTWO – Snapshot Report) or Electronic Arts (EA – Analyst Report) which both receive ‘buy’ ranks. Either of these would also help investors to go more along the digital route in the toy/game industry, and potentially avoid some of the main problems that MAT is facing, and struggling with, right now.

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Tiffany & Co: Zacks’ Bull of the Day Play

2014 has been an interesting year for retailers to say the least. Several clothing stores have had horrendous first half results as changing tastes have hit many companies hard. Meanwhile, in the restaurant side of the retail space, a similar trend has taken place as ‘higher quality’ companies are leaving their value-oriented counterparts in the dust.

This trend of high end outperforming lower end or value in the retail world is one of the bigger stories in this sector so far this year. And for a classic stock example of this that may still have more room to run as we close out the year, investors have to look no further than Tiffany & Co (TIF – Analyst Report).

TIF in Focus

Tiffany & Co is a New York City-based jewelry retailer, specializing in fine and solitary jewelry, though the company also sells watches, perfumes, and accessories as well. The company is obviously operating in the high end corner of the market, and like many of its high end peers across the retail world (no matter the industry), it is really turning up the heat as of late in terms of stock price appreciation, including a 20% move higher in the past six months alone.

A big reason for this jump is the recent earnings picture for the company, and TIF’s beats at earnings season. TIF posted EPS of 97 cents, easily crushing the consensus estimate of 77 cents a share.

The beat was thanks to strong sales, which were up 13% from the year ago quarter, while comparable-store sales also saw a double digit increase as well. And perhaps the best news from the sales beat was the strength across geographic divisions, as Asia-Pacific saw 17% growth, while Japan saw 20% growth, showcasing the strong demand for TIF products across global markets.

Earnings Outlook

Given the strong trend in the luxury and high end corners of the retail world, and TIF’s continued dominance of the space, it shouldn’t be too surprising to note that earnings estimates have been rising for Tiffany stock.

Estimates have risen for both the current year and the next year time frames, with not a single estimate going lower for either period. Now, TIF is projected to see double digit EPS growth for both this year and next, suggesting a strong, durable trend for the company.

And though higher expectations can be difficult to match, investors should take comfort in TIF’s recent history at earnings season. The company has beaten estimates in three of the last four reports, with an average surprise of roughly 15%, so raised expectations shouldn’t be too hard to hit this time around either.

Thanks to these factors, TIF has earned itself a Zacks Rank #1 (Strong Buy). This means that we are looking for more outperformance in the months ahead, and that we expect the positive momentum in TIF shares to continue into the fall.

Bottom Line

Not only is TIF in a great position, but there is strength in the industry too. In fact, the retail-jewelry industry is ranked in the top 2% of all industries (at time of writing), so investors can rest assured that a rising tide is lifting all boats in this space.

But while this industry is looking solid overall, TIF is really the pick that is shining bright. The company has seen solid sales growth and earnings beats, while it remains well-positioned to take advantage of the focus on high end retailers and the great trends that are underpinning the space.

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Guess : Zacks’ Bear of the Day Play

Started in 1981 as a family business Guess? Inc. designs, markets, distributes and licenses fashion apparel and accessories. Its products are sold through retail, wholesale, e-Commerce and licensing distribution channels.

GES directly operates 491 retail stores in the US and Canada and 350 retail stores in Europe, Asia and Latin America. Additionally, 856 retail stores outside of the US and Canada are operated by company’s licensees and distributors.

Mixed Results and Disappointing Guidance

On May 29, Guess? Inc. reported financial results for first quarter of its fiscal 2015. The apparel retailer posted a loss of $0.03 per share, which compared unfavorably with earnings of $0.14 per share a year ago.

However, the loss was narrower than the Zacks Consensus Estimate of a loss of $0.06 per share as well as management’s expected range of a loss of $0.09–$0.05 per share. Tighter expense control was the main factor behind better-than-expected results.

Revenues for the quarter were $523 million, 5% lower than the prior year and down 6% in constant currency terms. Comps fell 3.8% in the quarter due to lower mall traffic, but were better than 5% shortfall in the previous quarter.

According to the company, though the first two months of the quarter were affected by the change in Easter timing and adverse weather conditions, the business rebounded strongly in April.

However, the company provided a downbeat outlook for the upcoming quarter. They now expect both revenues and earnings to be lower than the prior year level. The management does not expect any notable improvement in Europe this year. They also expect economic conditions to continue to be challenging in Asia, especially in Korea .

In North America, they expect continued markdown pressure which is likely to more than offset the product cost improvements.

Downward Revisions

Due to weak guidance, quarterly and annual estimates have been revised downwards in the past few weeks. Zacks consensus estimates for the current quarter and year are now $0.28 per share and $1.48 per share respectively down from $0.41 per share and $1.56 per share, 60 days ago.

Negative estimates revisions send GES back to Zacks Rank # 5 (Strong Sell) earlier this month.

The Bottom Line

The company has globally diversified business operations but currently it appears to be struggling in all of its major markets. North America sales continue to be very challenging despite very promotional retail environment. Further softness in the Europe and Asia continues to impact results.

Better Play?

Investors looking for a better play in the Apparel industry could consider HanesBrands, a Zacks Rank # 1 (Strong Buy) stock. The company reported strong results for its second quarter with earnings up 43.7% from prior-year quarter.

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Chipotle: Zacks’ Bull of the Day Play

Chipotle had increased its menu prices during the second quarter, for the first time in three years, in response to rising food costs but its customers did not care. Same-store sales jumped 17.3% for the quarter, driven primarily by increased traffic. Analysts loved the quarterly results and have increased their estimates and price target for the company.
Rising estimates sent CMG to Zacks Rank # 1 (Strong Buy) yesterday.

About the Company

Founded in 1993 and based in Denver, CO, Chipotle Mexican Grill Inc. (CMG – Analyst Report) operates fast-casual Mexican food restaurant chains in 35 states throughout the United States, the District of Columbia and Ontario, Canada and the U.K.

Menu Prices Increase

The company increased its menu prices by about 6.25% to 6.5% on average, starting in late April and finishing in late June, with the increase varying by market and by menu item. For example, steak prices were raised by about 9% on average, while chicken prices were raised about 5%.

According to the management, apart from the slight shift from steak to chicken—which was expected by them—their customers have generally responded well so far to the price increases.

Strong Q2 Results and Improved Guidance

Chipotle reported its Q2 results on July 21. Revenues grew 28.6% year-over-year to $1.1 billion and beat the Zacks Consensus Estimate of $980.0 million by 7.1%. The upside was driven by higher comps growth and opening of 45 new restaurants.

Comparable sales growth was driven mainly by increased traffic and to a lesser extent from an increase in average check, including the benefit of the menu price increases. According to the company these results represent one of their strongest sales comps as a public company, second only to the Q1 of 2006, their very first quarter as a public company.

Adjusted earnings of $3.50 per share also beat the Zacks Consensus Estimate of $3.05 per share by 14.8% and were up 24.1% year over year.

With the release of results, Chipotle also increased its comps guidance for 2014. The company now expects comps in the mid-teens range versus the previous expectation of high-single digits comps increase. They expect to open 180-195 restaurants during the full -year.

Is the Premium Valuation Justified?

Chipotle’s stock in not cheap! Its current trailing 12-month earnings multiple is 58.2x, representing a premium of 76.4% to the industry average. Per Zacks Research, the company s shares have traded in the range of 22.3x to 57.7x trailing 12-month earnings during the last five years.

However Chipotle’s valuation appears to be justified due to its continued strong sales growth despite tepid industry sales trends. With its innovative food culture, effective marketing and a strong business model, Chipotle has a lot of room of grow.

So far, they have been able to attract more and more new customers and keep their customers coming back. Further, the company is likely to realize the full benefit of menu prices increases from the third quarter onwards.

Also, the company still has a substantial untapped potential for growth, particularly in international markets. Per WSJ, at a $20 billion valuation, Chipotle is approaching two-thirds the size of Yum! Brands, which has a $33 billion market cap and more than 40,000 of its KFC, Pizza Hut and Taco Bell outlets in 125 countries around the world. Chipotle, by contrast, has just over 1,500 restaurants, only a handful of which are outside the U.S.

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