Intel - Chipotle - Tesla - Weak, Strong and Disaster

Intel - Chipotle - Tesla - Intel Reports Weak 2019 Guidance

Intel - Chipotle- Tesla - It’s very interesting to review Intel’s earnings because the SOXX semiconductors ETF is up 33% year to date. Investors clearly think the cycle has bottomed. Intel’s weak quarter could give these bullish speculators some worries. The semiconductor cycle is highly cycle similar to manufacturing.

When sales are poor and there is a small signal that there will be a cyclical turnaround, investors quickly bet heavily on these names. There would need to be a huge reversal if semiconductor demand doesn’t rebound. That’s similar to how there would be a huge reversal in stocks if the economy weakens further.

On Friday, Intel’s stock fell 8.99%. The last time Intel fell 10% in reaction to earnings was January 15th, 2008. Intel reported 89 cents in EPS which beat estimates by 2 cents. Revenues were $16.06 billion which beat estimates for $16.02 billion. As you can see in the chart below, revenue growth was minus 4 basis points. It had negative growth in the past 2 economic slowdowns.

Intel reported weak guidance as it expects $69 billion in revenues in 2019 which missed estimates for $70.08 billion. That is below last year’s revenues of $71.05 billion. This could be the first decline in revenues since 2015. It seems like Amazon, 3M, and Intel all are seeing a cyclical downturn. It’s worth watching this trend even though the overall earnings beat rate is high. 

Intel - Chipotle - Tesla - There are pockets of weakness.

Last week, Intel announced it is exiting the 5G smartphone market because it doesn’t see a path to profitability. Intel was hurt by Apple’s decision to squash the litigation with Qualcomm and use its chips. Intel is going to need to rely on its data center business, which is a cash cow, but is weakening. That business saw revenues fall 5%. Its enterprise and government business revenue fell 21%. 

Communications service revenues fell 4% and cloud revenue only increased 5%. Its CPU sales were up 4% because of gaming and high end product sales. It’s very clear Intel is underperforming its peers. Don’t short the SOXX because Intel isn’t executing.  

Intel - Chipotle - Tesla - Chipotle Reports Amazing Earnings

Chipotle had an amazing quarter, but its stock fell 4.46% on Thursday probably because expectations were too high. The whisper number sometimes is higher than what analysts are expecting. That often occurs when the stock increases a huge amount before the quarter. Chipotle stock was up 64% year to date heading into the quarter.

Chipotle reported $3.40 in EPS which beat estimates for $3.01. It reported $1.31 billion in revenues which beat estimates for $1.27 billion. Same store sales growth was a fantastic 9.9% which beat estimates for 7.29%. Its net income increased from $59.4 billion last year to $88.1 billion.

As you can see from the chart below, sales growth increased from 10.4% to 13.9%. I love to invest in companies with accelerating revenue growth. Its number of locations increased 3% year over year to 2,504. The trailing 12 month sales per store were $7.6 million. 

This firm is long past its health issues that got customers sick in 2015. Gross margins were 21% which is the highest in at least 2 years. Operating margins of 8.4% were the highest since June 2017.

Intel - Chipotle - Tesla - Chipotle’s loyalty program launch was a smashing success. 

I’ve personally used Chipotle’s loyalty program. I find it easy to use and sticky. It certainly makes you want to order food because of the exclusive menu options and points based rewards. 

Digital sales were up 100.7%, accounting for 15.7% of sales. After one week of launching its loyalty program, Chipotle hit the 1 million member mark. Since then, it has grown to 3 million members. The firm did a successful promotion with YouTube celebrity David Dobrik to celebrate national burrito day. 

The YouTube star made his own burrito which was available for a limited time. There was free delivery on national burrito day using Chipotle’s app or DoorDash. Even after the free delivery promotion ended, the firm saw increased customer retention.

Its same store sales growth included a 0.3% negative impact from the anticipation of customers redeeming loyalty rewards. Chipotle’s same store sales growth has been positive for 5 straight quarters. It expects to open 140-155 locations this year. The firm raised its 2019 same store sales growth outlook from mid-single digit growth to mid-to-high single digit growth.

Intel - Chipotle - Tesla - Tesla’s Complete Disaster

Tesla’s earnings report on Wednesday was an unmitigated disaster. Short sellers have been expressing negativity about this stock for years. Finally, they are being proven correct. Tesla stock is down 10.9% in the past 3 days. It is down 24.18% year to date. It is at its lowest price since January 2017.

TSLA reported a loss of $2.90 per share which missed estimates of a loss of 69 cents by a mile. Revenues of $4.54 billion missed estimates for $5.19 billion. On an unadjusted basis, Tesla lost $4.10 per share which was slightly better than the $4.19 loss last year. 

It delivered 63,000 cars which missed estimates for 76,000. Weakness was catalyzed by the electric car tax credit expiring on January 1st

Intel - Chipotle - Tesla - TSLA cut prices slightly to ease the blow of this negative impact, but demand was still weak.

Specifically, the $7,500 tax credit given to buyers of Tesla cars was cut in half. This increased demand in Q4 and hurt demand in Q1. That’s why sales fell an astounding 41% sequentially. 

Tesla briefly sold the Model 3 car for $35,000, but removed the option quickly. The average sale price of Model 3 cars is $50,000. 

At this point, no one cares if Tesla ever sells this car for $35,000. Investors just want the company to stay afloat. Elon Musk stated on the conference call, “there’s merit to the idea of raising capital at this point.” That will dilute shareholders. 

The biggest growth prospect for Tesla is its Model Y SUV. The image below shows the versions of Model Y that will go on sale in 2020 and 2021. The firm is leaning toward building them at its Freemont car plant. 

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