Market Overview

Restaurant Stocks in Focus

Restaurant Stocks in Focus
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There's no shortage of stocks working now, but two former leaders in the restaurant space have been lagging the market as Wall Street questions growth prospects ahead. Both reported earnings late Tuesday.

Consistent execution hasn't been the problem for Panera Bread (Nasdaq: PNRA) and Chipotle Mexican Grill (NYSE: CMG).

Both firms have solid management teams and an impressive track record of growth, but recent price and volume trends in each stock say that growth-fund managers aren't as interested in owning the stocks as they once were.

On the surface, the numbers at Panera Bread looked on par. Earnings rose 23 percent from a year ago to $1.75 a share. Sales increased 15 percent to $571.5 million. The Thomson Reuters consensus estimate called for profit of $1.74 on sales of $574.8 million.

It was the second quarter in a row where sales growth slowed from the prior quarter. Same-stores sales, which exclude sales at newly-opened stores, rose 4.9 percent in the quarter.

From a technical perspective, Panera's 200-day simple moving average (SMA) has been a support level for several weeks. It's only about seven percent off its recent high. Buying demand for shares of Panera was slack ahead of earnings, but in pre-market trading, shares rose 3.7 percent to $169.

Panera's December 19 intra-day high of $168.84 is a key resistance level for now. A close above this price level in heavy volume would be a bullish development.

Meanwhile, the numbers at Chipotle didn't look too bad either with profit up eight percent to $1.95 a share. Sales rose 17 percent to $699.2 million. Analysts expected earnings of $1.96 on sales of $698.9 million. For Chipotle, the results marked the third straight quarter of decelerating sales growth.

Chipotle opened 180 restaurants in 2012, including 60 in the fourth quarter alone. For 2013, it plans to open 165-180 new locations.

Rising input costs have been a known problem at Chipotle for several months. When Chipotle reported weak third-quarter results in October, shares gapped down 15 percent on Oct. 19.

Shares initially popped four percent in after-hours trading Tuesday but in pre-market trading Wednesday, shares fell one percent to $302.

Chipotle's chart looks worse for the wear than Panera's at this point. Selling pressure has been much more pronounced in Chipotle. Between April and October last year, Chipotle corrected about 50 percent.

Headed into Wednesday, it was 31 percent off its 52-week high. Shares have been in rally mode lately, but its 200-day SMA around $327 looks like a significant resistance level for now.

Posted-In: Earnings Long Ideas News Technicals Movers Trading Ideas Best of Benzinga


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