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Chipotle Earnings: Could Pork Shortage Have an Impact?

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October 20, 2015
Chipotle Earnings: Could Pork Shortage Have an Impact?

Chipotle Mexican Grill (CMG), one of many restaurant and food service stocks facing a pork shortage in Q3, could report leaner sales growth when the restaurant chain reports results after the market closes Tuesday.

Why so painful? Carnitas are the chain’s most popular, and a higher-margin, menu item, company executives have stressed. In fact, carnitas orders at one-third of the Chipotle’s restaurants weren’t filled in Q3, the company has reported. As a result, Street analysts expect lower same-store sales, the industry benchmark for year-over-year growth, compared to a year earlier. Last year, CMG wrapped up its Q3 with the highest comparable-store growth in 13 quarters at 20%. 

Analysts reporting to Thomson Reuters are counting on double-digit top- and bottom-line results. On average, they are forecasting profit per share of $4.61 on sales of $1.22 billion.

CMG has managed to surprise Wall Street to the upside on earnings and profits for five straight quarters. Will it do so again and if so, what impact will that have on the stock price? That may be hard to determine since the stock has handily outpaced the S&P 500 (SPX) over the last 52 weeks.

The implied volatility is on the high end at the 81st percentile. CMG option volume is running at about 2 ½ times its historical daily clip. Option buying picked up for the November 725 calls and for the November 700 puts. The short-term options market is pricing in the chance of a 6.75% move in either direction for this stock around its earnings release, according to the thinkorswim® platform’s Market Maker Move indicator.

chipotle-stock-chart

FIGURE 1: OFF ALL-TIME HIGH.

Since the beginning of the year, CMG’s stock is up 5.9%—hitting an all-time high of $757 in early August—compared with the 1.1% decline for SPX. It currently trades near $718. Source: TD Ameritrade's thinkorswim platform. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Yahoo: BABA Buzz Could Matter More

The stock of Yahoo (YHOO), another consumer-driven company reporting its Q3 results after the market’s close today, hasn’t had nearly the ride CMG has. The multinational web portal and search engine’s big picture has dulled, industry analysts say, but options activity seems to have ramped up ahead of the results release.

Analysts polled by Thomson Reuters are expecting earnings per share at $0.15, plunging 71% from the $0.52 reported a year ago. They blame the stronger dollar against foreign currencies and the higher acquisition costs for new viewers. Revenue is expected to grow 15% to $1.02 billion, according to Thomson Reuters.

But Wall Street may already be prepped for such a report (figure 1). A Cantor Fitzgerald report issued Monday said to expect Q3 results that are “benign, in line with muted expectations.” The highlight of the results could be clarity on Yahoo’s expected spinoff of Alibaba Group (BABA)—something that could “overshadow” sales and earnings numbers.

The short-term options market is pricing in the chance of a 1.1% move in either direction for shares around this release, according to the thinkorswim® platform’s Market Maker Move indicator. The stock has some momentum after hitting a 52-week low in late September, recapturing nearly 20% of the more than 50% of value it lost in the last year. It’s still off 33% since the beginning of the year.

The YHOO options market is active today, with three times the normal volume of puts recorded over the last few days.

Yahoo-stock-chart

FIGURE 2: CAN REBOUND HOLD?

YHOO had been on a mostly downward path, erasing 33% since the beginning of the year, before an October bounce. Source: TD Ameritrade's thinkorswim platform. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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