Ticker Reports for August 27th
Brinker International Offers a Pullback Opportunity on EPS Miss
Casual dining restaurant operator Brinker International Inc. (NYSE: EAT) missed its Q2 2024 EPS estimates and provided mixed forward guidance. As expected, this news caused shares to gap down over 10% the following morning. However, investors took the opportunity to buy the dip and continue buying until the stock recovered its losses and returned to where it was before the earnings release. The recovery underscores the one key metric for restaurants that Wall Street pays the most attention to: comparable restaurant sales (comps), also known as same-store sales (SSS).
Brinker International operates in the consumer discretionary sector, competing with casual dining operators like Darden Restaurants Inc. (NYSE: DRI), Texas Roadhouse Inc. (NASDAQ: TXRH), and Bloomin’ Brands Inc. (NASDAQ: BLMN).
Brinker's Company-Owned and Franchised Restaurants
Brinker is best known for its two iconic brands, Chili’s Grill & Bar and Maggiano’s Little Italy. It added a virtual brand called It’s Just Wings, which operates out of existing Chili’s and Maggiano’s kitchens. As of June 26, 2024, the company operated 1,614 total company-owned and franchised restaurants. Brinker owns 1,117 domestic Chili’s, four international Chili's, and 50 Maggiano’s restaurants, for a total of 1,171 company-owned restaurants.
Franchisees own 97 domestic Chili’s, 344 international Chili’s, and two domestic Maggiano’s restaurants. Brinker collects around 4% of gross sales on franchised restaurants, which are operated independently by the franchisees, who license the brand and operating systems. The disparity between company-owned and franchised operations can be rather large due to the more favorable location, budgets, rigorous quality control, and performance standards.
Brinker Outpaces Rivals in YoY Sales Growth, Despite Earnings Miss
While Brinker missed EPS estimates, likely due to incurring more labor expenses due to increased foot traffic, the market focuses more on year-over-year (YoY) comps or SSS growth. Chili’s fiscal Q4 2024 comp sales growth was 14.8% YoY, while Maggiano’s experienced 2.5% YoY comp growth. Total overall comp growth was 13.5% YoY.
This bested competitors like Texas Roadhouse with an impressive 9.3% YoY comp sales in its latest quarter. It also beat fast-casual operators Sweetgreen Inc. (NYSE: SG) at 9% and Chipotle Mexican Grill Inc. (NYSE: CMG) at 11.1% YoY comp sales growth. However, the difference is the aforementioned beat both top and bottom-line guidance, whereas Brinker missed EPS expectations. Nonetheless, the robust comp sales attracted buyers on the sell-off to rush into the stock.
EAT Stock Forms a Symmetrical Triangle Pattern
The daily candlestick chart for EAT indicates a symmetrical triangle pattern. This is comprised of a descending upper trendline that started at the $76.02 swing high connecting to the ascending lower trendline that started at $56.27. EAT is attempting to break out through the upper trendline at $69.84, just ahead of the apex. The daily relative strength index (RSI) is rising to the 58-band. Pullback support levels are at $65.82, $60.98, $56.27, and $51.72.
Brinker's EPS Miss Spooks Investors
After seven consecutive quarters of EPS beats, Brinker reported fiscal Q4 2024 EPS of $1.61, missing consensus analyst estimates by 13 cents. Revenues rose an impressive 12.3% YoY to $1.21 billion, beating consensus estimates of $1.17 billion. The operating margin rose to 6.1%, while the restaurant operating margin rose to 15.2%. The company closed the quarter with $64.8 million in cash on hand.
“Big Smasher” Burger Boosts Chili’s Traffic, but Increases Expenses
Comparable restaurant sales at Chili’s rose a whopping 14.8% YoY, primarily due to increased menu prices and higher traffic. The launch of the “Big Smasher” burger, powered by its heavy marketing campaign and viral strength on TikTok, helped drive the comps. The surge in new customers to Chili’s prompted the company to proactively increase restaurant staff and bolster repairs and maintenance costs, which ate into the EPS. It also exceeded the company’s planned targets for annual and long-term performance-based compensation plans, resulting in a $13.2 million increase in general and administrative expenses in Q4 2024.
Brinker Issues Mixed Guidance
Brinker sees fiscal full-year 2025 EPS of $4.35 to $4.75, which is below consensus analyst estimates of $4.80. Full-year 2025 revenues are expected between $4.55 billion and $4.62 billion, beating $4.53 consensus estimates. The company clearly expects the trend to continue, but the added expenses to handle the extra traffic are expected to chew into its earnings.
Brinker CEO Kevin Hochman commented, "We achieved another quarter of solid progress against our strategy to deliver profitable, sustainable growth. We significantly outperformed the industry in both sales and traffic during the quarter, while maintaining record high guest metrics."
Hochman explained the EPS miss, "With significantly increased traffic at Chili's and many guests trying Chili's for the first time, we quickly accelerated investments in labor and the facilities to ensure a great experience."
Brinker International analyst ratings and price targets are at MarketBeat. There are 17 analyst ratings on EAT stock, comprised of seven Buys, seven Holds, and three Sells. Consensus analyst price targets point to $61.85.
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Globant Is an Emerging AI Play That's Expanding Its Footprint
Globant S.A. (NYSE: GLOB) is a jack-of-all-trades focusing on enterprise digital transformation. It provides business and technology consulting and digital solutions encompassing buzzword trends like artificial intelligence (AI), cloud computing, data science, metaverse, analytics, and the Internet of Things (IoT). The company has been steadily investing in its AI platforms, transforming itself into an emerging AI play, as evidenced by the 130% YoY growth in its AI-related revenue.
Globant operates in the computer and technology sector, competing with Endava plc (NYSE: DAVA) and EPAM Systems Inc. (NYSE: EPAM).
Embracing AI Inside and Out
Globant has not only adopted AI but has embraced it in full force. The company has bulked up its human AI talent by 70%, hiring data scientists and AI engineers over the past year. AI is its growth engine. On June 27, 2024, the company announced that it had integrated its proprietary AI Agents into the software development cycle. The AI Agents are supervised by human talent. It's expected to accelerate every stage of the software development sequence, which includes product definition, back-end prototyping, design, and code testing.
Globant’s Portfolio of AI Platforms
Globant has four AI platforms that help clients with AI development, coding, software development, and streamlining business processes.
- Augoor is a code intelligence platform that focuses on code navigation and comprehension. It enables developers to grasp and work with complex codebases promptly. In an effort to increase efficiency and productivity, it provides features like code completion, auto document generation, semantic search, and code mapping.
- MagnifiAI is the quality assurance platform that enables software testing at each stage. It provides the infrastructure and tools to build, train, and deploy customer AI models for a diverse range of enterprise needs.
- Navigate is an intelligence processing platform for incident management and business operations. It utilizes AI to identify process bottlenecks and monitor and analyze business processes to predict possible issues. It enables enterprises to optimize their operations and proactively engage in incidents.
- GeneXus is its low-code development platform that accelerates private AI development to automate software creation and maintenance. It enables developers to code applications using visual models, natural language, and other high-level abstractions to reduce complexity and development time.
Globant’s Growth Regions
Europe is its largest growth region, with revenue expanding 45% YoY, as the company closed its largest deal in history there. Latin America is growing by 23% YoY, and North America is growing by 10% YoY. Travel & hospitality was its leading segment with 60% YoY growth, followed by consumer, retail and manufacturing growth of 20% YoY.
GLOB Stock Triggers a Bull Flag Breakout
The daily candlestick chart for GLOB illustrates a bull flag breakout pattern. The preceding flagpole peaked at around $203 before the parallel channel comprised lower highs and lower lows. The breakout triggered heading into its Q2 2024 earnings report and accelerated following its release. The daily relative strength index (RSI) peaked at the 70-band twice and is attempting to coil again at the 61-band. Pullback support levels are at $190.55, $183.19, $176.59, and $171.85.
Globant's Top and Bottom Line Beat
Globant reported Q2 2024 EPS of $1.51, beating consensus estimates by 2 cents. Revenue grew 18.1% YoY to $587.46 million, beating $486.72 million. The company continues to land large accounts, ending the quarter with 19 clients with $20 million in accounts. The company had 329 clients with $1 million accounts, up 16% YoY. Its largest customer, The Walt Disney Co. (NYSE: DIS), increased its spending by 11% YoY.
Globant's Mixed Guidance
Globant issued Q3 2024 EPS of $1.60 to $1.64 versus $1.61. Revenues are expected between $611 million to $617 million versus $618.37 million. Full-year 2024 EPS is expected between $6.40 to $6.50 versus $6.33. Full-year revenues are expected to be between $2.407 billion and $2.421 billion versus the consensus estimates of $2.42 billion.
Guidant CEO Martin Migoya commented, “Our AI-related revenues have significantly grown by nearly 130% in the first half of 2024, underscoring our pivotal role in the ongoing AI revolution. With the unveiling of our AI agents, which enhance the software development life cycle, and the introduction of the Globant GUT Network at the Cannes Lions International Festival of Creativity, we are poised to meet the growing demands for AI-based solutions across the global economy.”
Globant analyst ratings and price targets are at MarketBeat. Needham reiterated their Buy rating and raised its 12-month price target to $245. However, UBS cut its rating to Neutral from Buy while Deutsche Bank initiated its rating with a Hold and a $210 price target.
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3 Small-Cap Stocks to Buy and Hold For 2025 and Beyond
Small-cap stocks have underperformed the broad market for years but are poised to rebound soon. The FOMC has all but committed to its first interest rate cut since 2020, ushering in a new age for stocks. In this new age, headwinds will diminish, allowing riskier businesses with greater dependence on borrowing to flourish. This is a look at three small-cap stocks well-positioned to benefit from the shift and deliver value to their shareholders in 2025 and beyond.
SelectQuote Well-Positioned to Benefit From AI
SelectQuote (NYSE: SLQT) is a small-cap insurance platform providing policies direct-to-consumers across four operating segments. The company is well-positioned for 2025 for several reasons, including lower interest rates and AI. The company is already using AI to improve efficiency and consumer outcomes and is expected to continue on this path. Details from the latest results include sustained, high-double-digit top-line growth, outperformance, and increased guidance. Guidance was increased by 800 basis points at the midpoint, putting it above the analysts' consensus forecast reported by MarketBeat and may be cautious given the trends.
Debt has been a concern for investors but is not a significant red flag today. The company’s leverage ratios are healthy, with long-term debt running at roughly half of assets and 2x equity, leaving it in a healthy position. That position is highlighted by the institutional activity in 2024. The balance of activity shifted to buying in Q2 and remained strong in Q3, creating a rising base of support, with the market trending higher from its bottom and on the brink of a complete reversal.
Institutions Like the Fit of Hanes
Hanesbrands (NYSE: HBI) is another quality stock whose share price has struggled over the past two years. The stock is trading near a 15-year low but is unlikely to fall further if for no other reason than institutional buying. The institutional activity in 2024 is overwhelmingly bullish and has lifted total ownership to over 80% of the stock. That is a powerful tailwind for the market that is leading to bullish activity on the price chart. The weekly chart shows this stock moving up from its bottom and on track to complete a reversal soon.
Among the catalysts for this stock is the sale of its global Champion business. The deal is expected to generate $1.3 to $1.5 billion in proceeds, dependent on reaching certain performance milestones. The cash will bolster the balance sheet by lowering debt and help the company continue its transformation efforts. The transformation is refocusing the company on “innerwear,” its core business, cutting out lower-margin operations and improving cash flow. The core business is expected to return to growth as soon as next year.
High-Yield Polaris Trades Near Rock Bottom
Polaris (NYSE: PII) stock price is struggling in 2024 due to economic headwinds with consumers focused on essentials rather than discretionary items like RV equipment. However, the business remains sufficient to sustain the dividend, yielding a robust 3% with shares near $87, and distribution growth remains in the outlook. The 2024 results leave plenty to be desired, but balance sheet health is not one of them. Highlights from the balance sheet include increased assets and a 7.4% increase in equity. Leverage is low at 1.5x equity and less than 0.5x assets.
Lower interest rates are Polaris's catalyst. Lower interest rates are expected to ease consumer pressures and unfreeze the discretionary spending market. This means that for Polaris investors, the business will likely inflect and return to growth at the end of the fiscal year. Growth may accelerate through the end of 2025, and the outlook for 2025 is light. In this environment, investors may expect analysts to shift gears and initiate an upgrade cycle to add upward pressure to the stock price. The opportunity for investors is earnings-driven growth compounded by a price-multiple expansion. Trading at 14x next year’s outlook, the stock is discounted by nearly 50% compared to the historical averages.
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