AI driven 10Q / 10K text analysis
Since there are always reasons when companies change the wording in their financial filings, being alerted to these changes allows investors to realise potential risk factors and opportunities before they are reflected in the market. Recent alerts include: 1) American Express - added several comments re. increased competition, as well as expansion through acquisitions. 2) Chipotle - aggressive goals for store openings; colour on new stores / pricing elasticity. 3) ePlus - decreased account profitability; government contract termination risks. 4) Microchip Technology - customers delaying orders; may continue to borrow to fund dividends. 5) PepsiCo - private label competition concerns.
Edition: 205
- 21 February, 2025
Which unit growth stories can be bought at a discount?
Consumer Discretionary / Staples
John Zolidis reviewed 18 unit growth stories in the consumer space, breaking out the value of the existing business from the implied value of the growth option. He then calculated the value of future unit growth using a store level DCF. He compared the implied value of the growth option in the first exercise to expected value creation from store growth in the second. From this John solved for where the market was paying the largest premium to the value of future growth and where growth could be purchased at a discount. The most interesting names on the long side were Academy Sports & Outdoors, Luckin Coffee and Yum China. Sprouts Farmers Market still looks very cheap even after +50% move YTD. Investors are paying the biggest premium for Dollarama, Chipotle and Dollar Tree.
Edition: 176
- 22 December, 2023
Restaurants: Negative surprise coming?
Consumer Discretionary
John Zolidis has published a bearish framework on the Restaurant industry and believes the Street is misunderstanding implications of commodity price declines which will disadvantage the industry vs. food-at-home as grocery stores pass on lower prices. Meanwhile, he sees no argument for a stronger consumer or better traffic this year. John predicts negative same-store sales in 2H23 (which is not reflected in analyst expectations). He is most bearish on value destroyer Shake Shack, investor favourite Chipotle, and overvalued growth name Dutch Bros.
Edition: 153
- 03 February, 2023
Consumer Discretionary
John Zolidis thinks this could be his number one short call ever in terms of market cap destruction - analysts are forecasting an 18%-30% increase in profit per average restaurant over the next two and three years, respectively. John’s call is that this cannot be achieved with the current combination of aggressive price increases, cuts to labour and customer losses. He predicts negative M-HSD transactions in 2023 and a miss to total sales and earnings forecasts. A re-rating to a low-mid-20s P/E gets you 30%-40% loss in equity value for CMG.
Edition: 149
- 25 November, 2022
Consumer Discretionary
While there was a lot to like about 2Q22 results, John Zolidis argues CMG has taken too much price, too quickly, in an environment of increasing consumer price sensitivity - he believes the company is making a strategic error, by focusing on delivering arbitrary pre-Covid margin targets, and is imperilling its consumer offer in the process. In fact, John claims the negative impact of aggressive pricing is already evident in CMG customer metrics, and another 4% price hike this month will be met with further resistance. Analysts are raising estimates, but with transactions likely to turn negative by 4Q22, earnings downgrades are coming.
Edition: 141
- 05 August, 2022
Chipotle (CMG), McDonald's (MCD), Domino's (DPZ)
Consumer Discretionary
Compass Restaurant Consulting & Research
CMG - Can sustain current SSS trends (June est. +8-10%); growing positive traffic trends (one of the only concepts doing so) coupled with little to no resistance to price increases. The new Pollo Asado is one of the most successful promotions in a long time.
MCD - Dominating the price / value messaging and taking market share from peers. June SSS expectations are +2-4%. Top sales drivers: 2 for $6, Nugget Bundles, Off Premise sales. On the negative side, most franchisees unhappy with the new PACE Store Visitation Program.
DPZ - Declining momentum. June SSS expectations are in the negative 3-1% range. Driver shortages not only impacting sales and market share, but also brand credibility; not easily fixed.
Edition: 137
- 10 June, 2022
Consumer Discretionary
Gordon Haskett Research Advisors
Powering through Omicron - news of long-term development acceleration is unprecedented for a company of CMG’s size. Jeff Farmer upgrades the stock to Buy arguing that the risk / reward has shifted dramatically following a sell off driven by rotation out of growth stocks. CMG is in a league of its own when it comes to the combination of: unit growth at scale, SSS growth, cash-on-cash returns, digital penetration, loyalty program relevance, margins and menu pricing power.
Edition: 129
- 18 February, 2022
Consumer Discretionary
Healthy product but unhealthy IPO - the stock is likely worth $0 given the company’s limited differentiation and the intense competition from other new entrants and established restaurants. Local sourcing model is expensive / risky; sees no path to profitability. Despite this, SG is priced to grow faster than Chipotle achieved in its first 10 years after going public.
In 2021, 36 out of New Constructs’ 41 Danger Zone stock picks outperformed as shorts with the top 5 outperforming the S&P 500 by an impressive 63% on average.
Edition: 126
- 07 January, 2022