Sonic sold for $2.3 billion

Sonic to be acquired by Inspire Brands for $43.50 per share in $2.3B deal

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Sonic sold for $2.3 billion, Stockwinners

Sonic (SONC) and Inspire Brands announced that they have entered into a definitive merger agreement under which Inspire will acquire Sonic for $43.50 per share in cash in a transaction valued at approximately $2.3B including the assumption of Sonic’s net debt.

Inspire is a multi-brand restaurant company whose portfolio includes more than 4,700 Arby’s, Buffalo Wild Wings, and Rusty Taco locations worldwide.

Following the completion of the transaction, Sonic will be a privately-held subsidiary of Inspire and will continue to be operated as an independent brand.

The agreement, which has been unanimously approved by Sonic’s board, represents a premium of approximately 19% per share to Sonic’s closing stock price on September 24, 2018 and a premium of approximately 21% to Sonic’s 30-day volume-weighted average price.

The transaction is subject to the approval of Sonic shareholders and the satisfaction of customary closing conditions, including applicable regulatory approvals, and will close by the end of the year.


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Yum China receives takeover offer

Yum China rises after reportedly spurning $46 per share takeover bid

Yum China receives takeover offer, Stockwinners
Yum China receives takeover offer, Stockwinners

Shares of Yum China (YUMC) are on the rise following a media report saying the company has rejected a buyout offer of $46 per share made by a consortium led by Hillhouse Capital.

Earlier this month, Bloomberg had reported that China’s sovereign wealth fund, China Investment Corp., was part of the consortium bidding to take Yum China private.

BUYOUT OFFER REPORTEDLY REJECTED

Yum China has rejected a private buyout offer from a consortium of investors that valued the company at over $17B, according to The Wall Street Journal, citing a person familiar with the matter.

An investor group led by Hillhouse Capital Group in recent months offered to take the restaurant operator private at $46 per share, but the all-cash offer was turned down by the company’s board in recent weeks, source told the publication.

Last month, The Information had reported that Hillhouse Capital was in talks to acquire Yum China. The company operates over 8,000 KFC and Pizza Hut restaurants across mainland China.

A takeover led by Hillhouse would assist the company in accelerating its efforts to implement high-tech initiatives in its brick-and-mortar stores in order to attract Chinese millennials, the report pointed out.

CHINA INVESTMENT PART OF CONSORTIUM

Earlier this month, Bloomberg reported that China’s sovereign wealth fund, China Investment Corp., was part of the consortium bidding to take Yum China private.

The sovereign fund and DCP Capital, an investment fund run by former KKR (KKR) executives, are considering a buyout of Yum China, which runs KFC and Pizza Hut outlets, along with Hillhouse Capital, the publication added. Yum China spun off from Yum! Brands (YUM) in 2016.

PRICE ACTION

In tuesday’s trading, shares of Yum China trading in New York are off their earlier highs, but are trading up 3.8% to $37.14.


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Barron’s is bullish on Ensco, bearish on Chipotle

Barron’s, the weekly publication owned by the Wall Street Journal, in its latest issue mentions several names:

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Stockwinners offers Barron’s review of stocks to buy, stocks to watch,

BULLISH   MENTIONS:

Investors should consider Ensco to benefit from oil-price surge.  Crude-oil prices are set to jump because President Donald Trump is likely to reintroduce harsh sanctions on Iran by mid-May and to benefit from the oil-price surge, investors should consider buying shares in Ensco (ESV), Simon Constable writes in this week’s edition of Barron’s. Other key oil stocks include EOG Resource (EOG), Transocean (RIG), Exxon Mobil (XOM), Halliburton (HAL), ConocoPhillips (COP) and Devon Energy (DVN), he adds.

Netflix may soon pass Disney in Market Value – Any week now, Netflix (NFLX) will surpass in market value Walt Disney (DIS) as investors cheer on the streaming service’s continued subscriber growth, Jack Hough writes in this week’s edition of Barron’s. Investors who buy Disney shares now could have a long wait before they learn whether the streaming push will result in a rebounding price/earnings ratio, but that is where a diversified business model helps, Hough says.

BEARISH  MENTIONS

Chipotle results boosted by potentially short-lived dynamics – Brian Niccol, the new CEO at Chipotle Mexican Grill, got an “enormous” endorsement on Thursday, as shares of the restaurant chain soared 24%, Avi Salzman writes in this week’s edition of Barron’s. But Salzman is still skeptical that investors should buy the rebound. The first-quarter report was boosted by several dynamics that could be short-lived, he argues, adding that even with those results, it is hard to “make a queso” for Chipotle tripling earnings.


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McDonald’s announces changes to Happy Meals

McDonald’s announces changes to Happy Meals

No more Chocolate Milk or Cheeseburger in Happy Meals

McDonald's announces changes to Happy Meals, Stockwinners.com
McDonald’s announces changes to Happy Meals

McDonald’s (MCD) announced an expanded commitment to families, supporting the company’s long-term global growth plan by leveraging its reach to impact children’s meals, access to reading, and keeping families together through Ronald McDonald House Charities.

By 2022, McDonald’s will make improvements to the Happy Meal menu across 120 markets to offer more balanced meals, simplify ingredients, continue to be transparent with Happy Meal nutrition information, reinforce responsible marketing to children, and leverage innovative marketing to help impact the purchase of foods and beverages that contain recommended food groups in Happy Meals.

Using rigorous nutrition criteria grounded in science and nutrition policy, by the end of 2022, at least 50 percent or more of the Happy Meals listed on menus (restaurant menu boards, primary ordering screen of kiosks and owned mobile ordering applications) in each market will meet McDonald’s new Global Happy Meal Nutrition Criteria of less than or equal to 600 calories; 10 percent of calories from saturated fat; 650mg sodium; and 10 percent of calories from added sugar.

Currently, 28 percent of Happy Meal combinations offered on menu boards in 20 major markets meet these new nutrition criteria.

To reach the goal of 50 percent or more, markets will add new menu offerings, reformulate or remove menu offerings from the Happy Meal section of the menu board.

For example, last month McDonald’s Italy introduced a new Happy Meal entree called the “Junior Chicken,” a lean protein sandwich (grilled chicken).

McDonald’s Australia is currently exploring new vegetable and lean protein options and McDonald’s France is looking at new vegetable offerings.

As consumers’ tastes and preferences continue to evolve, markets will prioritize Happy Meals and simplify ingredients by removing artificial flavors, added colors from artificial sources, and reducing artificial preservatives where feasible.

The company has made a continuous effort to meet consumers’ desire for easy access to nutrition information for menu items it serves with a goal of ensuring that nutrition information for Happy Meals is available and accessible through all McDonald’s owned websites and mobile apps used for ordering where they exist.

Customers in the U.S. will see accelerated changes to the Happy Meal menu this year.

In June 2018, 100 percent of the meal combinations offered on Happy Meal menu boards in the U.S. will be 600 calories or fewer, and 100 percent of those meal combinations will be compliant with the new nutrition criteria for added sugar, saturated fat, and 78 percent compliant with the new sodium criteria. Listing only the following entree choices: Hamburger, 4-piece and 6-piece Chicken McNuggets.

The Cheeseburger will only be available at a customer’s request.

Replacing the small French fries with kids-sized fries in the 6-piece Chicken McNugget meal, which decreases the calories and sodium in the fries serving by half.

Reformulating chocolate milk to reduce the amount of added sugar.

During this period, chocolate milk will no longer be listed on the Happy Meal menu, but will be available at a customer’s request.

Later this year, bottled water will be added as a featured beverage choice on Happy Meal menu boards.

In December 2017, McDonald’s USA completed the transition to Honest Kids Appley Ever After organic juice drink, which has 45 less calories and half the total sugar than the prior 100 percent apple juice served in the U.S. With these planned menu updates, there will be average reductions of 20 percent in calories, 50 percent in added sugars,13 percent in saturated fat and/or 17 percent in sodium, depending on the customer’s specific meal selection.

These reductions reflect the average nutrition data of U.S. Happy Meal offerings on the menu last year compared to those planned for later this year.

Already, several of the Happy Meal combinations available on U.S. menu boards today meet the new nutrition criteria and will not be changing.

MCD closed at $160.00.


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Chipotle drops on downgrade

Analyst says sell Chipotle amid ‘depressed’ brand perceptions, more competition

Chipotle Mexican Grill spokesman Chris Arnold says the company is aware of a "small number" of illnesses linked to a store in Sterling, Virginia
Chipotle drops on downgrade

Shares of Chipotle Mexican Grill (CMG) dropped in Thursday’s trading after a UBS analyst said to sell the stock, telling investors that brand perceptions “remain depressed” while competition is unlikely to ease this year.

SELL CHIPOTLE

UBS analyst Dennis #Geiger downgraded Chipotle to Sell from Neutral, saying he is “concerned” about deteriorating online customer review trends and possible implications for the trajectory of sales.

The analyst, who cut his price target to $290 from $345, noted that online review trends have continued to trend downward and have dropped below pre-food safety crisis lows.

He contended that “Despite aggressive efforts to improve brand perceptions through a new national advertising campaign and the launch of new products including queso recently, customer review scores have not shown any signs of improvement.”

Additionally, Geiger told clients that in addition to “depressed” brand perceptions, competition is unlikely to ease in 2018 and said Chipotle’s unit development expectations could be “ambitious.”

His analysis of more than 230,000 Chipotle reviews found that food safety, combined with rising competition, has likely weighed on Chipotle’s efforts to regain customers.

“The increasing penetration of fast casual brands and traditional quick service restaurants has likely weighed on Chipotle’s efforts to regain lost customers. In the aftermath of the Chipotle food safety incidents, our survey analysis indicated ‘like other QSR better’ as the second most cited reason for eating less at Chipotle,” Geiger said.

WHAT’S NOTABLE

Chipotle has faced several foodborne illness outbreaks since 2015. As recently as December 2017, public health officials in Los Angeles investigated a possible foodborne illness outbreak at a local Chipotle restaurant.

Chipotle confirmed that it was aware of the reports tied to its Pico Boulevard location, but said it had not heard from any customers directly. “As a precautionary measure, we have implemented heightened sanitization measures at this restaurant, which we do as a matter of policy if ever we receive reports of illness — even if they are not substantiated,” Chipotle spokesman Chris Arnold said at the time.

The company’s executive ranks have also been in turmoil, with the company searching for a new chief executive officer.

When a new CEO is appointed, current CEO and founder Steve Ells said he will focus primarily on innovation. In December, an analyst at Bernstein called Chipotle a “reasonably” attractive takeover target.

PRICE ACTION

In Thursday morning trading, shares of Chipotle Mexican Grill are down 4.3% to $310.92.


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Jack in the Box sold Qdoba for $305 million

Jack in the Box to sell Qdoba to Apollo affiliates for $305M

Qdoba sold for $305M. Stockwinners.com
Qdoba sold for $305M.

Jack in the Box (JACK) announced that it has entered into a definitive agreement to sell Qdoba Restaurant Corporation, a wholly owned subsidiary of the company which operates and franchises more than 700 QDOBA MEXICAN EATS restaurants, to certain funds managed by affiliates of Apollo Global Management (APO).

Under the terms of the agreement, the Apollo funds will purchase Qdoba for approximately $305M in cash, subject to customary closing conditions and adjustments.

The transaction is expected to close by April 2018.

The Company expects to use the net cash proceeds after tax and transaction costs to retire outstanding debt under its term loan, as required by the terms of its credit facility.

Lenny #Comma, chairman and CEO of Jack in the Box Inc., said, “For the past several months, we have worked closely with our financial advisors and evaluated various strategic alternatives with respect to Qdoba, including a sale or spin-off, as well as opportunities to refranchise company restaurants.

Following the completion of this robust process, our Board of Directors has determined that the sale of Qdoba is the best alternative for enhancing shareholder value and is consistent with the Company’s desire to transition to a less capital-intensive business model.

The Company intends to provide guidance for fiscal 2018 in connection with its presentation at the ICR Conference on January 9, 2018.

JACK closed at $100.34. It last traded at $103.00. APO closed at $32.63.


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Sonic hacked, Millions of credit card numbers stolen

Sonic breach may have impacted ‘millions’ of cards, Krebs on Security says

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Sonic Drive-In (SONC) has acknowledged unusual credit card activity at its drive-ins after a possible security breach, Krebs on Security reports, potentially impacting “millions” of credit and debit card accounts.

According to the blog, the stolen credit and debit cards are being peddled online.

In a statement to the blog, Sonic says “Our credit card processor informed us last week of unusual activity regarding credit cards used at SONIC. We are working to understand the nature and scope of this issue, as we know how important this is to our guests. We immediately engaged third-party forensic experts and law enforcement when we heard from our processor. While law enforcement limits the information we can share, we will communicate additional information as we are able.”

Christi Woodworth, VP of public relations at Sonic, told Krebs On Security that the investigation is still in its early stages, and the company does not yet know how many or which of its stores may be impacted.

Sonic has more than 3,600 locations in 45 states across the U.S.

Earlier this month, Equifax (EFX) announced that it has been hacked affecting some 140 million people.

STOCKS to WATCH

Stocks that may rally on the news are those in the software security space. They include: FEYE, PANW, VRSN, RSYS, FTNT, and RSYS.


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Accenture, Microsoft expand strategic alliance

Accenture, Microsoft expand strategic alliance to offer cybersecurity solutions

 Accenture, Microsoft expand strategic alliance. See Stockwinners.com for details

Accenture (ACN), Microsoft (MSFT) and Avanade are collaborating through a multi-year, multi-million-dollar agreement to develop, integrate and bring to market enhanced cyber defense solutions to help clients better detect, investigate and respond to cyber threats.

The collaboration extends the companies’ longstanding strategic relationship, which began in 2000.

The cyber defense offerings will be infused with joint threat intelligence and initially span three core areas:

Managed Security Operations: enhancing existing Accenture managed security services with integration of the latest Microsoft security products and services to monitor, detect and quickly respond to security breaches – targeted for on-premises, cloud and hybrid systems.

Incident Response Support: a joint, global and collaborative teaming approach leveraging tools and integrated processes to help clients return to normal operations after a significant security breach.

Integrated Threat Hunting: leveraging the Incident Response experience of the three companies to actively locate previously undetected breaches. According to the Accenture Security Index, more than 70% of organizations globally cannot identify and fully protect their corporate high-value assets.

In addition, the associated costs of cyber attacks are having a growing financial impact on businesses.

In 2017, the average cost of cyber crime climbed to $11.7M per organization, a 23% increase from last year, according to a new study by Accenture and the Ponemon Institute.


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The Fear Index Soars as Stocks Tumble

U.S. VIX Volatility Surges over 30% to clear 15.00

Buying Opportunity for Some Stocks this afternoon

VIX surges over 30% to above 15.00. See Stockwinners.com Market Radar to read more.

U.S. VIX (VIX) equity volatility surged over 30% to briefly clear 15.00 en route to 15.36, a 3-month highs after taking out 15.16 from June 29th, having cleared the 11.98 or its 200-day moving average earlier this week.

The spikes in the VIX represent a market sell-off.

That puts the double top near 16.30 from April/May within reach, ironically after recent rounds of trader layoffs in the financial sector due to persistently low volatility.

A breakout higher amid record speculative VIX short interest could put 23.01 November 2016 and 26.72 from July 2016 in scope.

Pullbacks will eye 11.98 and 11.56 session lows for support, along with all-time lows of 8.84 from July 26.

U.S. VIX equity volatility surges, See Stockwinners.com Market Radar

The S&P 500 (SPX) meanwhile is fast approaching its 2,448.3 or it’s 50-day moving average support line, which has provided investors a buying opportunity for the past several months.

It appears that investors may forgive legislative impasse, but are less generous about a nuclear war!

NASDAQ is off 1.2% and the Euro Stoxx 50 is 1.2% lower.

REBOUND POSSIBLE

Based on the charts show above, we expect the sell-off to continue into late afternoon on Thursday with a recovery into close, followed by a short-covering rally on Friday August 11th. Use this afternoon sell off to buy stocks that should be sold on Friday.

STOCKS TO WATCH

NFLX, EXEL, TTD, XXII, NVDA, AAPL, PEGA, SINA, SQ, USCR, YY.

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Barron’s is Bullish on Oil, Bearish on Tesla

Barron’s, the weekly publication owned by the Wall Street Journal, in its latest issue features several names. They include:

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BULLISH MENTIONS

Large-cap energy companies in better shape to raise dividends – With oil prices close to $50 a barrel, large-cap energy companies are in better shape to maintain or even raise their dividends than they were a few years ago, when prices collapsed, Lawrence Strauss writes in this week’s edition of Barron’s. Oneok (OKE), Valero Energy (VLO), Exxon Mobil (XOM), Phillips 66 (PSX), Marathon Petroleum (MPC) and ConocoPhillips (COP) expected to boost their payouts above 2016 levels this year, the publication said.

Delta Air Lines could rise 35% in two years. At $50, Delta’s (DAL) shares trade at about nine times estimated 2017 earnings, which is “inexpensive” for a company looking to post double-digit earnings growth in the coming years, Andrew Bary writes in this week’s edition of Barron’s. The shares could rise 35% in the next two years, Bary notes, adding that a 50% dividend hike in September will lift the yield to 2.4%.

Finisar seen as the ‘most attractive’ Apple iPhone supplier – With the next Apple’s (AAPL) iPhone expected this fall, Wall Street is starting to speculate on the winners, with CEVA (CEVA) joining Cirrus Logic (CRUS) and Skyworks Solutions (SWKS), Tiernan Ray writes in this week’s edition of Barron’s. Among the most talked-about aspects of the next iPhone is augmented reality, Ray notes, adding that possible beneficiaries include Finisar (FNSR), Lumentum Holdings (LITE), II-VI (IIVI), and Viavi Solutions (VIAV). Finisar shares surged in June when it announced quarterly results that included an order for “3-D sensing,” a code name for augmented reality, Barron’s points out.

Southern ‘a good bet’ for investors willing to take on more risk – This year has not been kind to Southern Company (SO) shares, but after Scana’s (SCG) news that it would abandon its plan to build two nuclear reactors in South Carolina, Southern could be a “good bet” for investors willing to take on a little more risk, Ben Levisohn writes in this week’s edition of Barron’s. Southern could decide to abandon the two plants it has under construction in Georgia, something that would likely be rewarded by the market, #Levisohn adds.

Voya Financial could be worth 30% more – Voya Financial (VOYA) shares have fallen over 13% in the past two years, with Wall Street penalizing the company for a “troubled” legacy variable-annuity business that had made some of the most generous benefit guarantees in the industry, Reshma Kapadia writes in this week’s edition of Barron’s. However, there are indications that Voya’s core retirement and investment business is growing, and that management is taking the right steps to reduce risk, Kapadia argues, adding that Voya could be worth at least 30% more than its current market value in the next year.

BEARISH MENTIONS

Slower growth in China could prompt retreat in Copper prices, Barron’s says – Copper is enjoying its biggest rally in months, boosted by increased confidence about global growth and a weaker U.S. dollar., Ira Iosebashvili writes in this week’s edition of Barron’s. However, some market participants urge caution, warning that the ground may shift under investors’ feet in the second half of the year, with many concerned about China, Iosebashvili adds. Publicly traded companies in the space include Freeport McMoRan (FCX), BHP Billiton (BHP), Rio Tinto (RIO), Anglo American (NGLOY), Southern Copper (SCCO), and Vale (VALE).

Chipotle (CMG) shares should be avoided, since food-safety
problems might be structural and not coincidental.

Buy Tesla car, not stock – In a follow-up story, Barron’s writes that Tesla (TSLA) shares have outrun most analysts’ reasoned cases for buying the stock. While initial reviews of the Model 3 are glowing, and Tesla reports a remarkable 450,000 in pre-orders, the company’s stock price leaves little on the table, the publication adds.

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Box Office Report for Weekend of July 7th

Revived ‘Spider-Man’ wins weekend with $117M

Revived 'Spider-Man' wins weekend with $117M See https://www.stockwinners.com/ActiveTraders

Box Office Battle:

 Sony’s (SNE) second reboot of the Marvel superhero series “Spider-Man: Homecoming” led the North American box office in its weekend debut, with an estimated $117M in sales in the U.S. and Canada, according to ComScore. The film was part of a production deal with Walt Disney’s (DIS) Marvel unit and marked Sony’s first number 1 opening this year. Overseas, “Spider Man: Homecoming” took in $140M from 56 markets. The superhero reboot holds a critics rating of 93% on Rotten Tomatoes and received an A in audience polls from #CinemaScore.

BOX OFFICE RUNNERS-UP:

Comcast’s (CMCSA) “Despicable Me 3” came in second place, declining 53% to $34M for a 10-day domestic total of $149.2M and global tally well north of $300M. Sony’s “Baby Driver” followed at number 3 in North America with $12.8M. Behind Sony’s second summer win was Warner’s (TWX) “Wonder Woman” with $10.1M for a domestic tally of $368.8M and $745.8M worldwide.

Rounding out the top five, Viacom’s (VIAB; VIA) Paramount Pictures “Transformers: The Last Knight” ended its third weekend with $6.3M for a lackluster North American total of $118.9M.

Other publicly traded companies in filmmaking include Lionsgate (LGF.A) and 21st Century Fox (FOX).

MetLife to Buy Fortress Investment’s Logan for $250 Million

MetLife to acquire Logan Circle Partners for roughly $250M in cash

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MetLife (MET) and Fortress Investment Group (FIG) announced a definitive agreement for MetLife to acquire Logan Circle Partners, L.P., Fortress’ traditional fixed income asset management business, for approximately $250M in cash.

Following the anticipated separation of Brighthouse Financial next month and assuming the closing of the Logan Circle Partners acquisition, MetLife’s Investment Management business would have more than $560B in total assets under management, of which more than $140B would be managed on behalf of third parties.

Under the terms of the agreement, MetLife will acquire 100% of Fortress’ ownership stake in Logan Circle Partners.

This transaction will not impact MetLife’s existing $3B repurchase authorization, which is expected to be completed by year-end 2017. The transaction is subject to customary closing conditions and regulatory approvals, and is expected to close in the third quarter of 2017.

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Chipotle Warns of High Costs, Shares Slide

Chipotle falls after signaling continued high costs to win back consumers

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Shares of Chipotle Mexican Grill (CMG) fell Tuesday after the restaurant chain “clarified” its second quarter outlook, appearing to confirm that costs related to food, marketing, and promotion will remain elevated as it seeks to regain consumer trust following its 2015 food scares.

CHIPOTLE WARNS ON COSTS

In a regulatory filing after Monday’s close, Chipotle “clarified” its financial outlook in connection with an investor meeting, saying that “for Q2, we continue to expect food costs to be approximately 34.2% of sales, and marketing and promotion costs to be up approximately 20-30 basis points versus Q1 to 3.6%-3.7% of sales. As a result, we expect other operating costs as a percentage of sales for Q2 to be at or slightly higher than reported for Q1. For the full year, we continue to expect comparable restaurant sales increases in the high single digits.”

PIPER MAKES ONLY MINOR TWEAKS:

Piper Jaffray’s Nicole Regan highlighted that the news follows a “solid” Q1 report and says the Q2 guidance update necessitates only “relatively minor” tweaks to her quarterly models. The analyst maintains her earnings predictions for both 2017 and 2018, adding that the firm’s latest checks generally reflect the consensus opinion that trends are now “headed in the right direction,” likely helped by Chipotle’s TV campaign. Regan reiterated an Overweight rating and $530 target on the stock while noting that its next catalyst is “stringing together a series of steady quarterly improvements.”

MAXIM PREFERS DEEPER PULLBACK

While keeping a Hold rating and $440 target on Chipotle, Maxim’s Stephen Anderson cut his Q2 profit estimate to $2.62 from $2.87 per share on the company’s likely higher costs, adding that he had previously expected food expenses to improve as promotional activity and commodity prices eased. The analyst models double-digit comparable sales growth for the quarter while warning of impacts from the Easter holiday shift and Chipotle’s recently-disclosed data breach, saying he still prefers to wait for a “deeper pullback” before recommending the stock.

DEUTSCHE HIGHLIGHTS MARGIN CONCERNS

Writing that margin recovery “remains under pressure,” Deutsche Bank analyst Brett Levy says food, marketing, and other operating costs continue to form an “apparent drag on restaurant-level profits.” Levy lowered his second quarter EPS view by 20c to $2.04 and highlighted that management indicated sequential expense pressures are expected to persist and could near 100 basis points of additional costs versus the prior consensus forecast for restaurant-level margins. The analyst keeps a Sell rating on the shares, arguing that Chipotle “faces an uphill battle” to regain lost sales while lifting margins

PRICE ACTION: Shares of Chipotle remain down 6.7% to $428.31 in late day trading.

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BabyRuth is For Sale!

Nestle to explore strategic options for its US confectionery business

Brands for sale include Butterfinger, BabyRuth, 100Grand, SkinnyCow, Raisinets, Chunky, OhHenry! and LaffyTaffy

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Nestle (NSRGY) to explore strategic options for its US confectionery business, including a potential sale.

The review covers the US market only and is expected to be completed by the end of this year. Nestle’s US confectionery business had sales of around CHF 900M in 2016.

It primarily includes popular local chocolate brands such as #Butterfinger, #BabyRuth, 100Grand, SkinnyCow, Raisinets, Chunky, OhHenry! and SnoCaps, as well as local sugar brands such as SweeTarts, #LaffyTaffy, Nerds, FunDip, PixyStix, Gobstopper, BottleCaps, Spree and Runts.

It also comprises the international chocolate brand #Crunch.

The strategic review does not cover Nestle’s Toll House baking products, a strategic growth brand which the company will continue to develop in the US market.

Nestle remains fully committed to growing its leading international confectionery activities around the world, particularly its global brand #KitKat.

Nestle’s global confectionery sales amounted to CHF 8.8B in 2016.

Potential buyers include Hershey’s (HSY), Carlisle Group Kraft-Heinz (KHC), and Warren Buffett’s Berkshire Hathaway (BRK-B).

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Qdoba Moves Jack In the Box

Jack In the Box would net $223M from the sale of Qdoba

After Qdoba sale, Jack in the Box’s free cash flow would rise to 6%

 

The shares of fast food chain owner Jack in the Box (JACK) are climbing after Wells Fargo upgraded the stock and Oppenheimer said the company’s risk/reward ratio will be “intriguing” if it can sell Qdoba.

Jack in the Box announced on May 17 that it was exploring strategic alternatives for #Qdoba, it’s burrito chain.

UPGRADE:

Wells Fargo analyst Jeff Farmer upgraded Jack in the Box to Outperform from Market Perform, arguing that the stock does not fully reflect the benefits that the company will obtain from selling Qdoba.

Estimating that the company would net $223M from the sale of Qdoba, the analyst predicted that it would repurchase $423M of its stock in the wake of the deal, lowering its share count by 14%.

Moreover, following a deal, $Jack in the Box’s EBITDA margin would increase by 10.5 percentage points and its return on invested capital would rise by over three percentage points, Farmer estimated. He raised his price target on the shares to $125 from $114.

INTRIGUING:

The risk/reward ratio of Jack in the Box’s stock is “intriguing,” assuming the company sells Qdoba, contended analyst Brian #Bittner.

Selling Qdoba would enable Jack in the Box to more effectively lower its costs and debt levels, Bittner believes.

After unloading Qdoba, Jack in the Box’s free cash flow would rise to 6% before share buybacks, versus the average of its peers of 4%-5.5%, the analyst stated.

Additionally, Jack in the Box can benefit from its delivery initiatives and discount deals, as well as commodity inflation that could force its competitors to scale down their discounts, Bittner believes. He kept a $125 price target and an Outperform rating on the shares.

PRICE ACTION: In midday Friday trading, Jack in the Box (JACK) rose 2.3% to $109.32. Note that the quick service restaurant sector has been outperforming other parts of the Restaurant sector.

Other stocks to watch: MCD, QSR, WEN, DPZ, YUM, and SONC.

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