February: A Tough Month for Stocks? Earnings Ahead
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History indicates that February is a historically weak month for the equity market. In compiling data from January 1928 through November 2012, the average S&P 500 price return for February is -0.19%. This compares to average market returns of 1.46% in December and 1.26% in January, well above the average return for all 12 months of 0.58%.
The month of February following a Presidential election is also traditionally weaker than February months without a preceding Presidential inauguration. January 2013 was a great month for stocks, with the S&P 500 up 5% in part due to strong money inflows for the New Year. Finally, the bull market that began in March 2009 is turning four years old, increasing the risk that we enter a bear market in 2013.
As I keep a careful eye for any change in market sentiment, here are three companies I’ll be following that report earnings on Tuesday, February 5.
Chipotle Mexican Grill (NYSE: CMG)
Tuesday, Feb. 5 after market close; EPS $1.96 / Revenue $698.86 million
On January 15, Chipotle reported lower-than-expected preliminary earnings per share, stating it expected to earn between $1.92-$1.97 EPS versus consensus of $2.09 for the fourth quarter of 2012. The company also reported preliminary revenue of $699.2 million versus $690.86 million.
Long-term investors remember the earnings reaction following Chipotle’s second quarter 2012 results, when expectations got too high and the stock fell from $403 to $317 overnight, a loss of 22% in a single trading session. I feel that Chipotle’s pre-announcement takes the risk of a similarly strong reaction off the table.
Chipotle also announced the launch of its Catering platform on the same date, with a national roll-out planned in coming months. Catering is available in the company’s home state of Colorado beginning on January 21, where group sizes between 20 and 200 can customize their own meal similar to an in-restaurant experience.
On January 29, Bank of America Merrill Lynch stated they viewed the pre-announcement as a positive, allowing investors to have a better focus on long-term fundamentals. BofA/Merrill raised its price target to $350 on Chipotle, from a prior target of $310. In contrast, Jefferies & Co. continues to believe that Chipotle’s 2013 earnings could be “meaningfully below consensus.” The New York investment firm maintains an Underperform rating and $215 price target on the stock.
Investors will also be looking to learn more about Chipotle’s expectations for higher food costs in 2013 on today’s earnings call. The company’s co-CEO stated food costs “increased faster than expected in Q4.” Chipotle is one of several companies that have hinted at a peak in operating margins. Check back at johnmacris.com for an article on this subject later in the week.
Walt Disney (NYSE: DIS)
Tuesday, Feb. 5 after market close; EPS $0.76 / Revenue $11.21 billion
On January 23, B. Riley Caris upgraded Disney to Buy from Neutral with a $63 price target. The San Francisco, CA based research firm believes the company is set for a strong 2013 calendar year with its film business (upcoming films Oz the Great and Powerful) and good visibility looking ahead to fiscal 2014. Goldman Sachs also upgraded its sector view of the U.S. Media industry on January 22, which included an upgrade of media competitor Viacom.
Overall, market sentiment is very positive on Disney heading into the company’s first quarter 2013 earnings release. The company received an additional boost of optimism from Stifel Nicolaus, which raised its price target on Disney to $63 from a previous $56 target. The research firm believes Disney may post a surprise profit at its studio & interactive business, where job cuts have reportedly taken place in recent weeks. Reuters originally reported that Disney was considering job cuts as part of an internal cost-cutting review program, with particular emphasis on jobs that are no longer needed due to technology improvements.
Shares of The Walt Disney Company have risen 8.5% since I published Disney Renews Shareholder Commitment, Remains Strong Buy on December 3, 2012.
Panera Bread (NASDAQ: PNRA)
Tuesday, Feb. 5 after market close; EPS $1.74 / Revenue $574.84 million
On November 30, the National Restaurant Association’s Restaurant Performance Index (RPI) fell to its lowest reading in fourteen months. The weakness is likely related to management concerns over the economic impact of Obamacare, following the recent Presidential election. The RPI index improved slightly with a December reading, only to decrease again in January.
For Panera’s fourth quarter, management guided for a same-store sales increase of 5% to 6% compared to the same period in 2011. On December 19, Wedbush upgraded Panera Bread to Outperform from Neutral with a new $190 price target. The research firm believes Panera’s same-store sales are trending at the high end of management’s guidance, and that earnings per share are likely protected from any commodity impact. The Independence, Ohio based Longbow Research followed in Wedbush’s steps and initiated Panera Bread with a Buy rating and $200 price target on January 15. Miller Tabak also upgraded Panera to Buy from Hold on January 25.
ITG Research is among the minority of bears on Wall Street, which believes that Panera Bread’s sales began to slow around Thanksgiving. ITG’s revenue estimate of $565 million is below Wall Street consensus of $575 million. ITG is unique in that the firm does not issue buy-sell recommendations for the companies within its coverage universe. Furthermore, the firm’s research is largely quantitative based which it believes allows for superior analysis.
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johnmacris has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, Panera Bread, and Walt Disney. The Motley Fool owns shares of Chipotle Mexican Grill, Panera Bread, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!