Ticker Reports for August 14th
Brinker International's Price Dip is an Appetizing Entry Point
Brinker International’s (NYSE: EAT) stock price fell 15% following its Q4 release, which presented an appetizing dip for investors to snack on. Weaker-than-expected earnings and softer-than-expected guidance caused the dip, but that is the worst news to be found. The remaining details prove the company’s strategy is working. Brinker International is growing, improving margins and shareholder value, and setting itself up for longer-term success. Among the details impacting the earnings are increased operational quality and customer satisfaction costs, which will help sustain growth over time and diminish in future quarters.
Brinker International operates and franchises the Chili's Grill & Bar and Maggiano's Little Italy restaurant brands. Additionally, the company runs the virtual brand It's Just Wings.
Brinker International Had a Good Quarter, But the Market Wanted More
Brinker International had a good quarter despite missing earnings estimates. The company’s revenue grew by 11.1% to $1.2 billion and beat the consensus reported by MarketBeat by 350 basis points. The strength is due to a 13.5% increase in comps at Chili’s offset by slower 2.5% growth at Maggiano’s. Chili’s growth is attributed to a 5.9% increase in traffic compounded by increased menu pricing. The launch of the Big Smasher burger was also cited as a traffic driver. Growth in the core business would have been stronger without the strategic decision to deemphasize virtual brands like It’s Just Wings, which operate out of Chili’s locations.
Margin and profits are why the stock price fell. The company reported $1.61 in adjusted earnings to miss the consensus by $0.11 or 625 basis points. However, as bad as the miss is, it is offset by the fact that the restaurant-level operating margin and the system-wide operating income margin rose, resulting in a leveraged gain on the bottom line. The GAAP and adjusted earnings are up compared to last year, adjusted by nearly 16%, and margin improvements are expected to stick.
Guidance echoes the Q4 results in that revenue is expected to grow at an above-consensus pace, but margins will not expand as much as forecasted. The company is targeting $4.55 in adjusted earnings compared to the consensus of $4.78, which is not good for market sentiment.
Brinker International Reached an Inflection Point in Q4 F2024
The real takeaway is that the company reached an inflection point in Q4. The company’s efforts to improve operations and operational quality improved cash flow to the point that cash is building on the balance sheet while it pays down debt and reinvests in the business. The net result is that the shareholder deficit dwindled to zero and turned positive and is expected to continue improving in F2025. Leverage remains high at 20x equity but is also expected to fall dramatically over the coming quarters.
MarketBeat did not track any analysts' revisions within the first few hours of the release, but the trends are positive. Sixteen analysts have pegged the stock at a consensus of Hold, showing a relatively high conviction in the $57.60 consensus price target. The consensus price target lags the market even with the double-digit price implosion but is rising and up 55% from last year, providing substantial support in alignment with the critical 150-day EMA.
Brinker Falls Into the Buy-Zone: Institutions Are Scooping Up This Stock
Institutional activity in this stock has been robust for the last year. The institutions have bought on balance for four consecutive quarters and own more than 90% of the shares. Their activity aligns with the rise in share prices and will likely continue to support the stock at current levels. The early indications are that the market is buying the price dip and giving a strong buy signal. The signal strength is indicated by the spike in volume, confirming support above the recent low. Brinker International stock may consolidate at these levels for the next few months, but a move below $57.50 is not expected, and a new all-time high is likely sometime in 2025.
Apple's Silent Suppliers Could Soar Through a Recession
The iPhone has been Apple's #1 product for over a decade…
But it may not even exist as we know it by September 10.
3 Stocks That Could Beat the September Blues
Whether the product of genuine market forces or psychology, the September Effect — the tendency for September to be, on average, the worst month of the year for the market — can have a very real impact. Couple that with mounting fears of a recession, and things get even more uncertain for investors as the summer reaches a close.
Investors looking to mitigate the potential negative effects of September trading should keep in mind that market volatility is natural and expected and that sudden or rash moves may only make things worse.
While no stock is a sure thing, Vertiv Holdings Co. (NYSE: VRT), Mondelez International (NASDAQ: MDLZ), and e.l.f. Beauty (NYSE: ELF) may offer some stability during a period of potential market tumult.
Organic Sales Growth Fuels Vertiv Guidance Increase
Even if September is volatile for markets, it's a good bet that AI hype will remain steady. The AI market has ballooned by more than a third to $184 billion in the last year, and forecasts suggest growth could continue at roughly the same pace through 2025.
Vertiv, a company specializing in data centers and digital infrastructure and services, stands to gain from the growing interest in AI technologies. The company topped analyst expectations for the second quarter of the year with net sales of $2 billion and operating profit of $336 million, an increase of 13% and 63% year-over-year, respectively.
CEO Giordano Albertazzi cited "increased scaling of AI deployment" and Vertiv's unique position connecting IT and facilities in data centers as drivers.
AI interest has translated into real increases in demand for Vertiv's services, as second-quarter organic orders climbed by 57% year-over-year and 37% on a trailing 12-month basis. The firm signaled its belief that this will continue throughout the rest of the year by raising sales and operating profit guidance to $7.7 billion and $1.3 billion at the midpoint, respectively.
Analysts are bullish on Vertiv. Based on nine analyst ratings, the company has an average price target of $96.22 and an upside potential of over 26%.
Mondelez Boosted Dividend Amid Efficiency Project
With a market capitalization of more than $94 billion, Mondelez is a titan of the food and beverage business. The firm has a broad reach across the Americas, Europe and Asia. What's more, executives are guiding the company to reduce inefficiencies while simultaneously offering an attractive dividend prospect for investors.
Mondelez reported 1.9% and 34.8% declines year-over-year, respectively, in net revenues and diluted earnings per share in the second quarter. These figures are somewhat misleading, though, as they reflect both unfavorable currency-related items and the impact of the firm's 2023 sell-off of its gum business. For example, adjusted EPS was up 25% year-over-year on a constant currency basis. The company's free cash flow remained strong at $1.5 billion.
Efficiency is key for an operation as large as Mondelez. The firm plans to dedicate $1.2 billion to a large-scale enterprise resource planning and supply chain operations overhaul through 2028.
In the latest quarterly report, Mondelez announced an 11% boost to its dividend as a sign that it expects the project to be a success and to avoid disruptions.
Opportunity to Buy on the Dip for e.l.f. Beauty?
e.l.f. Beauty stands out among cosmetics companies for its budget-friendly pricing, which is especially helpful if the economy slips into a recession. Investors may have a unique opportunity to bulk up on e.l.f. shares at a bargain, as the company's share price surprisingly slipped by 20% in the last five days following a strong earnings report for the fiscal first quarter.
From April to June, e.l.f. logged net sales of $324.5 million, 50% higher than the prior-year quarter. Surging sales are always good, particularly for a company with a gross margin of 71%. Net sales growth for e.l.f. is driven by improvements in in-person retail and e-commerce and an increase in market share of 260 basis points. The company has managed to carve out a section of the competitive cosmetics space through its strong brand and affordable prices compared to many legacy firms.
As e.l.f. continues to expand to new retail channels, it is well-positioned for either an economic downturn or a scenario in which the FOMC cuts rates next month. It's no surprise, then, that analysts have set an average price target of $216.43, representing an upside potential of more than 45%.
Though the September Effect could put a damper on investments in the coming weeks, some firms are in a better position than others to emerge unscathed or even up. Weighting your investments toward defensive plays like consumer staples stocks is an approach that may be helpful.
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Canopy Growth Stock: Can It Sustain Recent Gains?
Canopy Growth (NASDAQ: CGC) is one of the North American players in the cannabis industry. The company’s shares have seen massive fluctuations since going public in 2014 under the name Tweed Incorporated. The company's value reached nearly $20 billion in early 2021 but now sits at just $575 million.
That current valuation is despite the fact that over the last 12 months, shares are up 69%. The question is what catalysts are on the horizon for this rise to continue.
Let's explore the firm's operations to provide context. The discussion will include highlights from the fiscal Q1 2025 earnings, reported on Aug. 9, and a look at potential legal changes in the marijuana industry. Find out what key developments investors should be watching.
Canopy Growth: Canadian Business with Unreportable U.S. Operations
Canopy Growth operates through four reportable segments: Canada Cannabis, International Markets Cannabis, Storz & Bickel, and The Works. In the Canada Cannabis segment, the company produces and sells medical and recreational cannabis and hemp products within Canada. The international segment relates to sales in Australia and Europe.
Storz & Bickel makes and distributes cannabis vaporizers and accessories. The Works segment was sold at the end of 2023 and will not be included in future financial results.
In 2023, 56% of the company's net revenues were generated by the Canada Cannabis segment. The majority of these sales occurred through business-to-business channels rather than direct-to-consumer. Medical revenue comprises 30% of the Canada Cannabis segment revenue.
Storz and Bickel accounted for 19% of net revenue, and international markets for 12%. Storz & Bickel was the only profitable segment. However, the Canada Cannabis and International Markets segments saw huge improvements in gross margin from 2022 to 2023. They improved 3,200 and 2,700 basis points, respectively.
Readers are probably wondering, “What about the United States?" Canopy operates in the U.S. indirectly through owning 72% of the outstanding shares of Canopy USA; however, the shares do not have voting rights. Current U.S. laws and stock exchange rules prevent consolidating the entity's results in Canopy Growth's financials.
Canopy Earnings: Still Unprofitable, But Margins are Improving
Canada Growth disappointed substantially in its latest earnings release, reporting a loss of $1.60 per share versus an expected loss of $0.48.
Revenue of $48.2 million was down 13% from the previous year and 8% below expectations. The company said this decrease was mostly due to the divestment of the Works segment, which accounted for 8% of revenue in 2023. The rest of this change came from Canada Cannabis, where revenues declined 6%. The other segments were essentially flat.
The company is moving closer to profitability, with the last 12 months' operating loss at its lowest level since the end of 2018. Gross margin and operating margin are also at their best levels.
Potential Legal Changes in the United States
In the spring of 2024, the U.S. Drug Enforcement Administration and the U.S. Department of Justice made moves to help change the classification of marijuana under the Controlled Substances Act. The proposed changes would reclassify marijuana from a Schedule I drug to a Schedule III drug.
However, this change would not federally legalize marijuana, and Canopy Growth would still face legal issues in the U.S. The federally legal sale of medical cannabis would also still require FDA approval. Canopy would only experience significant benefits from the legalization of marijuana, which Congress must pass.
With growing support for marijuana legalization, there's potential for bipartisan agreement on this issue. Recent legislation in states and broad public backing indicate a shift towards acceptance, suggesting that change could occur regardless of presidential election outcomes.
However, for now, investors should assume no big changes to Canopy's U.S. operations.
Analysts' Price Targets and What to Watch For
Among Wall Street analysts, Piper Sandler appears to be the only firm that has recently updated its price target to $2. This represents a downside of 71% from the current price.
Without transparency into the performance of the firm’s U.S. business and legalization not coming anytime soon, investors should exercise caution.
Canopy's first priority should be becoming profitable in its home country. Investors should continue to monitor this progress, which will help signal how successful Canopy could be if the U.S. market opens fully. The combination of these factors could vastly increase Canopy’s value.
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