Netflix, Chipotle Stand Out as Others Struggle: Earnings This Week

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Netflix, Chipotle Stand Out as Others Struggle: Earnings This Week

The coronavirus shutdown continues to weigh on quarterly results. However, a few stocks are immune or benefiting from the pandemic.

Companies like Coca-Cola (KO) and Hershey (HSY) have lost sales because of the disease. Target (TGT) enjoyed a surge of online orders, but higher costs are squeezing profits. Discover Financial (DFS) followed the cue of banks last week, setting aside $1.1 billion for delinquent loans after millions of Americans lost their jobs.

Netflix (NFLX), on the other hand, added more than twice the expected number of subscribers after stay-at-home orders drew new users. Chipotle Mexican Grill (CMG) sailed past estimates thanks to smart-phone wielding millennials and an industry-leading digital platform.

It’s the second week of earnings season, with more than 60 members of the S&P 500 reporting. The wave intensifies through early May, with bigger names like Apple (AAPL), Microsoft (MSFT), Advanced Micro Devices (AMD) and Tesla (TSLA) next week.

The numbers come at an unprecedented time in history, with social lockdowns creating bizarre life-or-death scenarios for business. Many companies have responded by withdrawing guidance. Individual reports could matter less for sentiment. The real story will be how quickly life returns to normal.

Chipotle Mexican Grill (CMG), with 50- and 200-day moving averages.
Chipotle Mexican Grill (CMG), daily chart, with 50- and 200-day moving averages.

Netflix and Chipotle

NFLX and CMG were the most prominent reports. Almost 16 million new customers signed up for the streaming-video giant, the least economically sensitive of the major “FANG” stocks. Its guidance for the current quarter — 7.5 million — was also twice the forecast amount. Foreign audiences are driving the growth.

But is that as good as it gets? NFLX rallied before the report because everyone knew social distancing would boost viewership. Higher costs pushed earnings below estimates. Investors are also worried about slower growth down the road, plus increased competition from Walt Disney (DIS).

Don’t be surprised if NFLX gets punished as an expensive “coronavirus stock” if the pandemic lifts soon.

CMG had clean beats on the top and bottom lines. It had a double serving of good news. First, CEO Brian Niccol’s turnaround plan was working before coronavirus hit. We see that in the 14.4 percent same-store sales growth in January and February.

Second, its digital investments paid big dividends in the age of delivery and working from home. Analysts see that driving market-share gains after the crisis.

Target’s Margin Implosion

The coronavirus shift is less of a blessing for big-box retailer TGT because consumers have shifted to lower-margin products like food. They’re also avoiding stores and higher-margin items such as apparel, according to a CNBC interview with CEO Brian Cornell.

Target (TGT), daily chart, with 50- and 200-day moving averages.

Wage costs are squeezing the firm, which officially issues results in about one month. All those issues are pushing TGT back below its 50-day moving average, even with digital sales almost quadrupling.

Soft-drinks giant KO, heavily reliant on stadiums and restaurants, said global volumes are down 25 percent since the outbreak started. Its backward-looking results beat estimates, but management withdrew forward guidance.

HSY, on the other hand, missed across the board. It’s now hitting resistance at its 50-day moving average.

Business is also slowing sharply at Quest Diagnostics (DGX). Management warned that medical-testing volumes fell more than 40 percent in March. Even with the potential for coronavirus screening, the outbreak is keeping patients away from its branches.

Bull Market for Kleenex?

Kimberly Clark (KMB), the maker of consumer products like Kleenex and Scott toilet paper, beat estimates after social distancing drove up volumes by 8 percent.

Eli Lilly (LLY) also benefited from coronavirus after patients stockpiled its diabetes drug Trulicity. The pharmaceutical company has also been rallying on optimism about its prospective cancer drug selpercatinib, plus other treatments.

Snap (SNAP) had a strong quarter, with earnings and revenue both surpassing estimates. While coronavirus partially boosted usage, the social-media company mostly benefited from strong direct-response (DR) advertising. Analysts raised price targets and said several quarters of technological upgrades are paying off.

Texas Instruments (TXN) had a mixed quarter, despite beating forecasts. The chip maker’s challenge is heavy exposure to markets like automobiles, rather than cloud-computing. Given the collapse in various industrial indexes, will coronavirus make business worse before it gets better?

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