Scandal stock earnings preview: Chipotle and Valeant Pharmaceutical
By Colin Cieszynski, Chief Market Strategist
and Jasper Lawler, Market Analyst
These two companies have seen a sharp drop in their share price in the past year after scandals hit both companies. Can Q1 earnings see investors return?
Chipotle Earnings Preview
(Confirmed reporting date: 26/4/16)
It would be a severe understatement to suggest that expectations are pessimistic for this quarter. Chipotle is set to report its first ever quarterly loss since going public.
Traffic into Chipotle restaurants has collapsed since several disease outbreaks caused hundreds of sick customers. Chipotle has been trying to get the traffic back by direct marketing and coupon campaigns. The reduced traffic is the main driver of the lower revenues but the loss could be compounded by the cost of intense marketing and discounting.
Last quarter, the company beat the street on earnings $2.50 to $2.03 but missed on sales at $997M. The big question this time around is how much damage has been done by its tarnished reputation? The street is expecting a loss of $0.96 on sales of $868M down 20% from last year.
It remains to be seen if results will be good enough to stop the bleeding or if the dams could give way again.
Since peaking above $750 back in October, the shares have plunged back into the $400-500 range following a series of major setbacks for the company that sent same store sales down 36% over year in January.
(Source: CMC Markets, 16/4/16)
Valeant Earnings Preview
(Expected reporting date: 29/4/16)
Valeant has just named Joseph Papa as new CEO in what is going to be a long road of needed reform. The company still faces political pressure from the presidential campaign trail over ‘price gauging.’ An investigation of the company’s relationship with Philidor RX Services by the SEC is ongoing.
In light of its recent scandals, the most important thing Valeant can do this quarter is issue a clean report, confirm that restatements of previous results are finished and file its 10K report to get its creditors off its back.
Because of its reporting problems, it’s hard to compare current results with previous quarters or to tell how the street would take a surprise. For what it’s worth, the current consensus estimate is for adjusted EPS of $1.38 on sales of $2.35B.
Shares near $31.50 are trading up a bit from their 52-week low near $25.00 but still way down from their 52-week high near $264.
(Source: CMC Markets, 16/4/16)
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